Funding Portal Investor Quiz
All crowdfund investment takes place online either through funding portals or broker-dealers. Funding portals are websites that cooperate with Securities and Exchange Commission (SEC) regulations established to enact the JOBS Act legislation.
Every funding portal should feature a quiz that potential investors must take before they are allowed to contribute funds to a campaign. The purpose of the quiz is to make sure that investors are aware of the risks involved in putting money into small businesses and startups.
Here’s an example of what such a quiz may look like; all questions should be answered in the affirmative:
Do you understand that most startups fail?
Do you understand that you may never see a return on your money?
Do you understand that if you do see a return, it may come years later and be less than you put in?
Do you understand that these are restricted shares and any return will be limited to dividends, stock buy-back, sale, merger, IPO, or any potential liquidity on the secondary market?
Secondary markets are based on supply and demand; while you may be able to list your shares for sale after holding them for one year, that doesn’t mean that someone will be waiting there to buy them.
Do you understand that crowdfund investing is a high risk investment and, as with most investments, the way to reduce exposure is to diversify (for example, invest in stocks that are not as risky)?
Do you know and trust the entrepreneur or small business owner and understand his/her idea and business model?
The reason crowdfund investing works is because it is presumed that you have a first- or second-degree relation to the entrepreneur.
Do you understand that it is your responsibility to understand the business idea and how it makes money to decide if it is worthy of your investment?
Do you understand that no one should be making this investment choice for you?
Do you understand that the investment offering is an arbitrary amount determined by the entrepreneur and that if you do not deem it worthy for the risk, you shouldn’t invest?
Do you understand that crowdfund investing is active rather than passive investing?
In other words, you must read the pitch, watch the video, read the crowd’s questions and the entrepreneur’s answers, join the conversation if you are confused, and invest only when you are satisfied.