Every investor (“Investor's”) should understand that any investment in a single company or multiple companies on the AngelTrades platform (each, a “startup” or “opportunity”) through a Liquid Special Purpose Vehicle™ (“LSPV™” or “Fund”) formed for purposes of accommodating co-investment amongst AngelTrades Members involves a high degree of risk.
There can be no assurance that (i) a LSPV’s investment objectives will be achieved, (ii) a startup or AngelTrades listed opportunity will achieve its business plan, or (iii) an Investor will receive a return of any investment. Additionally, there may be occasions when an AngelTrades State Ambassador who approves an opportunity (an “Ambassador”) for listing on AngelTrades.com, and/or their respective affiliates, may encounter potential conflicts of interest in connection with a LSPV, such that said party may avoid a loss, or even realize a gain, when other Investors in the LSPV are suffering losses. The following considerations, among others, should be carefully evaluated before making an investment in a startup or a LSPV.
Although upside rewards can sometimes be significant, an inherent risk in startup investments is that an investor may, and 75% of the time does, lose their entire investment.
Investment in any startup involves a very high degree of risk. Operating and financial risks confronting early-stage companies are significant. Although an investor’s targeted profits should reflect the perceived level of risk in any investment opportunity, such profits may never be realized and/or may not be adequate to compensate the investor for the investment risks taken. Loss of an investor’s entire investment does often occur. Too, the timing of any potential return on investment is highly uncertain.
Early company opportunities may experience unexpected problems in the areas of marketing, financing, product & service development, manufacturing, and management, to name a few potential problems, which often cannot be solved. Additionally, startups may need substantial financing, which may be unavailable through accredited private placements, public markets or other means.
Investment in Technology Opportunities
Technology opportunities may be at risk to factors affecting the technology industry such as:
Quickly changing technologies;
Technologies & services that may become outdated;
A shortage of personnel with the appropriate talent;
Possible lawsuits related to IP and patents;
Changing investor preferences and sentiment regarding technology investments; and
Government regulation, which make technology companies susceptible to changes in policy and failures or delays in obtaining regulatory approval.
The success of an investment opportunity may be influenced by general economic conditions. The availability of credit markets, equity markets and other economic systems which a startup may depend on to achieve its objectives may have a negative impact on a company’s operations and ability to create profit. Global growth may be impacted by acts of war, terrorism or a variety of events. Therefore, there can be no certainty that such markets and systems will be available for a startup to be successful. Variable economic conditions may, and frequently do, unfavorably effect the valuation of a company.
Future and Past Performance
The past performance of a company or its management, AngelTrades, or it Ambassadors, is not predictive of an opportunity’s future results. There is no assurance that targeted results will be achieved and the loss of capital is very possible, and likely, with any investment.
Difficulty in Valuing Startup Investments
It is enormously difficult to determine objective values for any new company. In addition to the struggle of understanding the size of the risks applicable to an early-stage company, and the likelihood that a company’s business will be a success, there may be no available market for an early company’s equity or a LSPV’s shares, making an investor’s ownership difficult to value.
An investor’s investments in an LSPV’s shares will represent a minority stake in any opportunity listed on AngelTrades.com. Investors in AngelTrades listed LSPVs are reliant on the existing management and board of directors of the underlying listed companies and include individuals not affiliated with AngelTrades, and whose interests may conflict with the interests of investors in an AngelTrades listed LSPV.
Deficiency of Information for Valuing Startups
Investors in AngelTrades listed LSPVs may not be able to obtain all information desired for each opportunity represented by an LSPV on a timely basis. It’s possible the LSPV and its investors may not be aware of adverse changes that have occurred with respect to certain listed opportunities. As a result of these difficulties and uncertainties investors may not have accurate information about a listed opportunity’s current value or the value of the securities held by a LSPV.
No Assurance of Additional Capital for Startups
After an investing AngelTrades Member has invested in a LSPV, continued development and marketing of the startup’s products or services may require additional funding. Technology startups generally have considerable capital needs that are usually funded over several stages of investment. Such additional funding may not be available or may be available at unfavorable terms.
Absence of Liquidity and Public Markets
Although AngelTrades Members receive shares that are salable to other AngelTrades accredited investors after a required one-year hold period, there is no certainty that buyers will emerge to purchase LSPV shares at a value that is favorable to the seller or at all. Thus, an investing Member of AngelTrades bears all economic risks of its investment for the term of a LSPV (ten years or until an acquisition or public offering of the underlying investment of an LSPV, if any.
Legal and Regulatory Risks Associated with LSPVs
No LSPV is, nor expects to be, registered as an “investment company” under the United States Investment Company Act of 1940, as amended (the “Investment Company Act”), pursuant to an exemption set forth in Sections 3(c)(1) and/or 3(c)(7) of the Investment Company Act. There is no assurance that such exemptions will continue to be available to these entities.
Neither a LSPV nor its counsel can assure an investing AngelTrades Member that, under certain conditions, changed circumstances, or changes in the law, the LSPV may not become subject to the Investment Company Act or other burdensome regulation. No LSPV plans to register the offering of any Interests under the United States Securities Act of 1933, as amended (the “Securities Act”). Therefore, no AngelTrades Member shall be given the protections of the Securities Act with respect to an investment in a relevant LSPV.
There are numerous tax risks related to investment in startups. You should always consult a tax advisor regarding tax consequences related to purchasing equity securities of a startup or an interest in a LSPV.
Withholding and Other Taxes
The structure of an investment in a LSPV might not be tax efficient for a particular investor, and no startup or LSPV guarantees any particular tax result will be realized. Additionally, tax-reporting requirements may be imposed on investing Members under the laws of the jurisdictions in which each investor is liable for taxation or in which a LSPV makes investments. Investors should always consult professional advisors with respect to their personal potential tax consequences under the laws of the jurisdictions in which the investing Member and/or the startups or LSPVs are liable for taxation.
Limited Operating History of LSPVs
Each LSPV is a newly formed entity and has no operating history. Each LSPV’s investment should be evaluated on the basis that AngelTrade’s guestimate of the potential of investments may not prove accurate and that the LSPV will not achieve its investment objective. Past performance by an Ambassador who approves a listed opportunity on AngelTrades, the underlying opportunity’s principals or management is NOT predictive of future results.
Conflicts of Interest; Investment Opportunities
Instances may arise in which the interest of a deal-approving Ambassador or AngelTrades management may potentially or actually conflict with the interests of a LSPV and/or its investing Members. For example, conflicts of interest may arise as a result of an AngelTrades State Ambassador having investments in portfolio companies of the relevant LSPV and also investments in similar companies, both public and private.
Lack of Investor Control
Investors in a LSPV will not make decisions with respect to the management, disposition or other realization of any investment made by the relevant LSPV.
Certain information regarding the startups and AngelTrades listed opportunities will be highly confidential. Competitors may benefit from such information if it is ever made public, and that could result in adverse economic consequences to the Investors.
Forward Looking Statements
The information available to LSPVs and investing AngelTrades Members may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often include words such as "anticipates," "estimates," "expects," "projects," "intends," "plans," "believes" and words and terms of similar substance in connection with discussions of future operating or financial performance. Examples of forward-looking statements include, but are not limited to, statements regarding: (i) the adequacy of a startup’s funding to meet its future needs, (ii) the revenue and expenses expected over the life of the startup, (iii) the market for a startup’s goods or services, or (iv) other similar maters.
Each startup’s forward-looking statements are based on management's current expectations and assumptions regarding the startup’s business and performance, the economy and other future conditions and forecasts of future events, circumstances and results. As with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances. A listed startup’s actual results may vary materially from those expressed or implied in its forward-looking statements. Important factors that could cause the startup’s actual results to differ materially from those in its forward-looking statements include government regulation, economic, strategic, political and social conditions and the following factors:
Recent and future changes in technology, services and standards;
Changes in consumer behavior;
Changes in a startup’s plans, initiatives and strategies, and consumer acceptance thereof;
Changes in the plans, initiatives and strategies of the third parties that are necessary or important to the startup’s success;
Competitive pressures, including as a result of changes in technology;
The startup's ability to deal effectively with economic slowdowns or other economic or market difficulties;
Increased volatility or decreased liquidity in the capital markets, including any limitation on the startup’s ability to access the capital markets for debt securities, refinance its outstanding indebtedness or obtain equity, debt or bank financings on acceptable terms;
The failure to meet earnings expectations;
The adequacy of the startup's risk management framework;
Changes in U.S. GAAP or other applicable accounting policies;
The impact of terrorist acts, hostilities, natural disasters (including extreme weather) and pandemic viruses;
A disruption or failure of the startup's or its vendors' network and information systems or other technology on which the company's businesses rely;
Changes in tax, federal communication and other laws and regulations;
Changes in foreign exchange rates and in the stability and existence of foreign currencies; and
Other risks and uncertainties, which may or may not be specifically discussed in materials provided to Investors.
Any forward-looking statement made by a startup speaks only as of the date on which it is made. Startups are under no obligation to, and generally expressly disclaim any obligation to, update or alter their forward-looking statements, whether as a result of new information, subsequent events or otherwise.
The foregoing risks do not purport to be a complete explanation of all the risks involved in acquiring equity securities in a startup or interest in a LSPV. Each investing AngelTrades Members is urged to seek their own independent legal and tax advice and read relevant investment documents before making a determination whether to invest in a startup via shares in a LSPV.