Crowdfund Investing For Dummies
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If you want to exit your crowdfund investment after the first year, you can. No chain tethers you to the entrepreneur or business owner after this point. Here are your options:

  • Selling on the secondary market: A secondary market is akin to one of the public exchanges, like NASDAQ, that exists for buying and selling public company stocks. Of course, a secondary market for a crowdfund investment needs to allow for the sale of private shares. It operates under the same principles of supply and demand that a public exchange does.

  • In other words, you have to wait until the demand exists (a buyer is available) before you can sell your shares.

    To be clear, secondary markets for crowdfund investments are not the same as NASDAQ. Secondary markets for crowdfund investments are private exchanges that act similar to the public exchanges. It’s important for you to understand that it’s much harder to sell your crowdfund investment stock on the secondary market than it is to sell the stock of a public company on a public exchange.

    There simply aren’t enough buyers available to make shares on the private secondary market very liquid. This fact is especially true if you own shares in a local business (think about a bakery or a dry cleaner, for example).

  • Being bought out by a professional investor: This option could arise at any time, or it may never happen (depending on the specific company you’re invested in). The majority owners in the company may vote on allowing a buyout, and you then have the opportunity to sell your shares.

    If this scenario occurs, you may consider your work done and allow someone with stronger hands to take over, or you may stick around for the ride if that option is available to you. (Who knows . . . the company’s performance may get even better!)

About This Article

This article is from the book:

About the book authors:

Sherwood Neiss, Jason W. Best, and Zak Cassady-Dorion are the founders of Startup Exemption (developers of the crowdfund investing framework used in the 2012 JOBS Act). They deeply understand the process, rules, disclosures, and risks of capital formation from both the entrepreneur's and the investor's points of view.

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