Investing in early-stage companies is risky but also can be exciting, especially when you’re able to invest across multiple regulation crowdfunding offerings that interest you. Startups know that investing in a super young company like them is risky, and they sometimes show appreciation to their early investors by offering various types of early bird perks.
Perks can vary from sending investors a branded t-shirt to offering early investors favorable terms of investment. Below we’ll cover different types of perks you might come across with Regulation Crowdfunding offerings, as well as examples of how perks might be structured.
One type of early bird perk that startups might offer is a favorable value cap for early investments. Valuation caps apply to crowd notes, which is a security type that a Regulation Crowdfunding offering might provide. The crowd note is a deviation from the convertible note, which is essentially a loan that converts to equity at a pre-determined maturity date or company milestone, typically a financing event outlined in the terms.
Crowd Note vs. Convertible Note: What’s the Difference?
A crowd note is similar to a convertible note, but it has been adapted specifically for Regulation Crowdfunding investing. The primary difference is that a crowd note does not automatically convert at a set maturity date or conversion milestone. Instead, the company can choose to extend or convert the crowd notes after a qualified financing. With a crowd note, investors lock in the conversion price per share of the initial qualified financing and type of stock, even if the company chooses to extend when the crowd note will convert, should a qualifying event occur.
The potential perk applies in that early investors may receive a lower valuation cap for their crowd notes. A valuation cap is the pre-determined maximum valuation of a company at which the investor agrees to convert into shares. Value caps allow early investors to convert their investment at the value cap amount and not the potentially higher valuation post qualified equity financing, thus rewarding early investors for taking on the risk of early investment.
For example, an early bird perk might be that investors that fund the first $250,000 will receive Crowd Notes with a conversion provision based on a $4.5 million valuation cap instead of a $5.5 million valuation cap.
A decreased value cap or an increased discount also be applied by date. Using the previous example, the $4.5 million valuation cap could apply to investors who invest within the first 30 days of the raise, and anyone investing after that would have the $5.5 million value cap.
Tangible Perks and Experiences
Tangible perks and exclusive experiences are another type of perk that some regulation crowdfunding offerings include. While these are fairly self-explanatory, below are some examples of what you might see offered as a thank you to early investors:
- Swag, such as branded t-shirts, mugs, or similar items
- Sample of product
- Gift cards, vouchers for product, or a coupon code for products/service
- A meet-the-founders invitation, a Q&A webinar with the founders or team, a tour of the facilities (or virtual tour), or an invite to an exclusive event
- Ability to name or collaborate to name a product
- Product named after an investor
- Recognition of investors by name on website, social media, etc.
Perks are often offered in tiers based on the amount invested and/or by the date the investment was made.
Tangible perks are often offered in tiers based on a minimum amount an investor invests. Typically, each tier will also include the previous tier’s perk, and each level is usually double or triple the minimum investment threshold of the previous perk tier.
For example, a startup with a regulation crowdfunding offering might set up perk tiers that offer a branded t-shirt for a minimum $250 investment, a Q&A webinar with the founders at a minimum $500 investment, and then a virtual factory tour with a minimum $1,000 investment.
Perks can also be offered in tiers determined by the date investors make their investments. For example, gift card amounts might be offered in a tiered manner for an investment offering listed January 1, where a minimum $250 investment triggers perks based on when the investment was made:
- Through January 7: Receive a gift card equal to 100% of investment amount
- January 8 through January 21: Receive a gift card equal to 50% of investment amount
- January 22 through close of offering: Receive a gift card equal to 25% of investment amount
The issuer can determine how to structure the tiers and how many levels to detail. Tiered perks, whether by date or amount invested, provide an extra “thank you” to the earliest investors willing to take on the risk of investing in the company. It’s important to remember that access to perks is subject to Regulation CF annual investment limits.
Ready to Invest?
Perks are meant to be a thank you from the company for investing, and not all offerings will offer a perk. It’s always important to do your due diligence when investing, regardless of perks. If you’re ready to explore offerings currently live on the MicroVentures platform, head over to the offerings page. Read the terms carefully to understand the investment opportunity as well as any perks that may be available for a specific investing opportunity.
The information presented here is for general informational purposes only and is not intended to be, nor should it be construed or used as, comprehensive offering documentation for any security, investment, tax or legal advice, a recommendation, or an offer to sell, or a solicitation of an offer to buy, an interest, directly or indirectly, in any company. Investing in both early-stage and later-stage companies carries a high degree of risk. A loss of an investor’s entire investment is possible, and no profit may be realized. Investors should be aware that these types of investments are illiquid and should anticipate holding until an exit occurs.
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