Step 3. Learn "Investment Terms" & When Combined With Crowdfunding Terms You Have A Solid Educational Foundation
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Return on Equity (ROE)
ROE is calculated by dividing net income by shareholders’ equity. Shareholders’ equity is equal to a company’s assets minus its debt, ROE is considered the return on net assets. Equity is the amount of money that would be returned to a company’s shareholders if all of the assets were liquidated and all of the company’s debt was paid off in the case of liquidation.
A preferred return—simply called pref—describes the claim on profits given to preferred investors in a project. The preferred investors will be the first to receive returns up to a certain percentage. Preferred return is the order in which profits from a real estate project are distributed to investors. Preferred return indicates a contractual entitlement to distributions of profit.
Non-Accredited investor (Anyone)
A capital raise project offering that is open to both accredited and non-accredited investors. Since 2016, non-accredited investors are allowed to participate in equity crowdfunding.
A net worth (not including the value of your primary residence), or joint net worth with your spouse of at least $1,000,000.
An individual income in excess of $200,000 in each of the two most recent years or joint income with your spouse in excess of $300,000 in each of those years.
Regulation Crowdfunding (REG CF)
This enables eligible companies to offer & sell securities via crowdfunding. Reg CF transactions take place online via an SEC-registered intermediary (broker-dealer/funding portal). The max aggregate raise is $5 million in a 12 month period. Non-accredited investors are limited in how much they can invest across all crowdfunding offerings in a 12-month period.
Side-by-Side Projects (Reg CF & Reg D 506c)
A Side-by-Side is two separate projects running parallel together to enable accredited and non-accredited investors into the issuer’s main project. This allows capital raises beyond $5,000,000 and is suitable for large projects seeking to attract multiple classes of investors.
Under this March 16th, 2021 rule, all issuers will be allowed to gauge market interest in a possible initial public offering or other registered securities offering through discussions prior to or following, the filing of a registration statement. Potential investors, provide feedback to the issuer to gauge interest.
Project Exit Strategy
An exit strategy is a contingency plan that is executed by an investor, trader, venture capitalist, or business owner to liquidate a position in a financial asset or dispose of tangible business assets once predetermined criteria for either has been met or exceeded.