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- What types of securities does Raise Green offer?
What types of securities does Raise Green offer?26 November 2022
It's important that investors understand and weigh the risks associated with each type of security offered by Raise Green and its Originators. Below you will find detailed descriptions of what you can invest in:
Each securities offering will have a full description of the terms and risks associated with its investment. A careful study of the specific terms is needed to determine whether the security’s investment profile will fit your particular investment and portfolio objectives. Investors are encouraged to speak to an investment professional to review investments in advance of purchasing. As a funding portal, Raise Green does not provide investment advice.
Another way to describe corporate bonds, debt notes possess an interest rate, principal loan amount, a coupon, and a date of maturity in which the life of the note concludes. As such, owners of these securities are legally entitled to cash payment from the issuing company at a set frequency. In the event of asset liquidation, debt holders are typically the first individuals (before equity owners) to be repaid. As such, debt is sometimes considered less risky than owning equity.
Debt Notes can have different levels of security or subordination – meaning if there is a default or liquidation event, the order or availability of cash to pay out their creditors will vary. Secured debt is one where there is specific collateral that is securing the debt note so that if assets need to be sold to pay creditors, the specific collateral will be available to pay the debt note holders. Unsecured debt is one where there is no specific collateral backing the debt but relies solely on the company’s creditworthiness and promise to repay. Unsecured debt of the same company is considered more risky therefore than secured debt. Subordinated debt is an unsecured note that ranks below other, more senior loans or securities of the company, with respect to claims on assets or earnings. In the case of default, creditors who own subordinated debt will not be paid out until after senior noteholders are paid in full. Investors must be aware that the creditworthiness of each company must be reviewed (i.e., senior debt of one company may be more or less risky than the same level of debt of another company).
With fixed income securities (such as Notes), there is an obligation by the Company to pay an Investor interest and principal on their investment in the future (pursuant to the applicable terms and conditions of such security). The amounts payable on the Notes are fixed amounts. Unlike with an equity investment, a Noteholder does not have the ability to participate in the upside potential that an equity investor does if the Company is very successful.
There is no guarantee that the Company will be able to make the fixed amounts payable to an Investor or for that matter pay other liabilities. If the Company should default on a scheduled payment, file for bankruptcy, become insolvent, or otherwise be in a position where the Company is unable to pay its debts as they become due, then the Company may not be able to satisfy its payment obligations under the Note, and an Investor may therefore either suffer a loss of their investment or not realize their anticipated return on their investment. With crowdfunded securities, there is generally limited opportunity to cure a default because there are generally no provisions for investors to collectively agree on restructuring, pursue repayment, or take other collective actions.
Because the Notes are debt securities, Investors will have no ability to participate in decisions of the Company and must rely on management of the Company. If the Notes are not secured by specific collateral (unsecured), the Investor has no special rights to the assets of the Company in order to reclaim their investment. Rather, in a default scenario, the Investors typically rely on a trustee to sell the assets and pay the Investor with the proceeds of the assets. There is no guarantee that there will be sufficient assets left to pay the Noteholders. If the debt note is subordinated to other debt in the company, then the note will have a lower priority in the case of a default to be paid, further increasing the risk for the noteholder. Unlike listed companies that are valued publicly through market-driven trading, the valuation of securities of Reg CF companies may be more difficult to determine.
Investors may but there is no guarantee they will receive any notice of default, material changes, or other problems with the Company, construction or operation of the Project. There are no specific provisions for investors to collectively agree to new terms with respect to the Notes or restructure or reschedule amounts due on the Notes. There are no provisions for investors to communicate with each other or take any collective action to pursue repayment of the Notes.
Interest rates fluctuate over time and may go up or go down. If interest rates go up in the future, an Investor’s investment will maintain the original lower interest rate set forth in the Note. Subject to any applicable restrictions on the transfer of such Notes, if an Investor desires to sell their Note to someone else, a third-party, such third-party may require a discount from the Investor’s original investment amount (or current outstanding principal amount), which would cause them to realize a loss on their investment. If the note is callable, and the company decides to call the note before its maturity date, when an Investor goes to reinvest their money, current interest rates may be lower, which may result in a lower interest rate for such new investment.
Volatility in interest rates may come from a wide variety of factors and can be very difficult to forecast. Examples that move interest rates are changes in monetary policy, geopolitical risks, inflation expectations, to name a few. Uncertainty in global and financial markets can have a negative impact on interest rates, in particular those that are perceived by investors as more risky.
There is no public market for, and the investor may be unable to sell, the Notes. The Company’s offer and sale of the Notes will not be registered under the Securities Act or under any state securities laws. No transfer of the Notes may be made unless the transfer is registered under the Securities Act and applicable state securities laws, or an exemption is available. As a precondition to the effectiveness of any such transfer, the Company may require the transferor to provide it with an opinion of legal counsel stating that the transfer is legal and to pay any costs the Company incurs in connection with the transfer.
Often considered a “hybrid security” due to its combination of debt and equity features, preferred equity generally gives investors a higher claim to dividends and assets than common stockholders. It is, however, an equity investment. This type of security typically pays a fixed dividend on top of functioning as a type of equity. Preferred Equity holders gain capital structure priority typically sandwiched between bondholders and common shareholders. While common stock may entitle shareholders to voting rights in Corporate Governance considerations, Preferred Equity typically holds no such rights.
The dividend or distribution payments on preferred stocks must typically be paid before any dividends can be paid to common stockholders. The dividends and return of principal, if any, are not an obligation of the Company in the same way that interest payments and return of original principal investment on the Company's bonds are an obligation. If the Company misses an interest payment on its bonds, it is in default of its bond agreement, and bondholders can sue the Company. If the Company misses a preferred dividend or distribution payment, it's not in default.
Uncertainty around the timing and size of Distribution Payments — There is no defined maturity. Preferred securities receive Dividend or Distribution Payments whose timing and size is determined by a waterfall for available cash, defined in the Company’s Operating Agreement (or similar document), and prior to distribution must be approved by the Board. While a Company may intend to pay distributions based on a specific schedule, the actual schedule of payments will be dependent on how the Company is performing, and ability to access cash, among other variables. It is possible that the Company would need to delay payments for one quarter, many quarters, or for an indeterminate period of time. Investors may never receive interest (dividends) on their original investment amount or their original investment amount back.
Limited Upside potential — While the ability to make timely and complete Dividend or Distribution Payments is generally supported by good operating performance and increased value in the Company’s equity, Preferred Stock typically does not have the same upside potential as common stock— this is in exchange for higher priority to receive payments; some preferred stock offers little to no upside but rather focuses more on providing investors with stable dividend payments. The specifics for the Preferred Stock being offered to an investor are spelled out for each offering in the documents provided.
Interest rate risk — Interest rates fluctuate over time and may go up or down. Depending on the preferred stock, especially those with targeted stable dividends that “look” similar to fixed income, the preferred stock can be sensitive to changes in interest rates. If interest rates go up for a similar investment in the future, this investment will maintain its original lower targeted dividend rate. Subject to any applicable restrictions on the transfer of such preferred equity, if an investor desires to sell their preferred equity to someone else, a third-party, such third-party may require a discount from the investor’s expected sale price, which would cause them to potentially realize a loss on their investment. Equity investments, generally, are impacted by rises in interest rates as this may mean a general slowdown in the economy and reduction in the value of the Company’s future earnings.
Call risk — Assuming a call provision, at the option of the Company, the investor’s preferred equity can be redeemed (see the particular provisions set forth in such an offering) by the Company, sometimes with no notice to the investor in advance. Typically an Issuer will do this just when the investor would like to keep their security. For example, if there were a purchase of the company upcoming that could be a win for investors; for securities with target dividend or interest rate returns, that are more bond-like in features, when interest rates are lower.
Priority of Payment risk — Preferred Equity is a form of equity and any distribution and/or liquidation rights are unsecured obligations of the Company that are “subordinated” (i.e., junior in distribution priority and liquidation preference) to the rights of all currently existing, and potentially future, senior classes of equity or debt securities of the Company. Therefore, the Company’s obligations to the holders of any existing, and potentially future, “senior” classes of securities must be satisfied in-full before payment can be made on the preferred equity. Accordingly, there can be no assurance that the Company will have sufficient cash flow to pay its other operating expenses and/or obligations, and, therefore, investors may realize a loss, which could be substantial, if not all, of their investment in the Preferred Equity. And because Preferred Equity does not vote, they can not influence the Company in a manner that benefits Preferred Equity holders.
Valuation risk — While the Company may believe that the pricing and targeted dividend rates and their timing, if any, are generally reflective of market terms for an investment of this nature, there is currently a very limited market of comparable offerings to reference. Unlike listed companies that are valued publicly through market-driven trading, the valuation of securities of private companies, especially startups or in early stages, is difficult.
Liquidity Risk – There can be no assurance that the Company will ever provide liquidity to Purchasers including but not limited to a Change of Control event, a registration of the Securities, calling or purchasing back the securities, or allowing an investor to transfer their security freely. It is important to understand that there can be no assurance that any form of merger, combination, or sale of the Company will take place, triggering a Change of Control redemption under the terms of the Operating Agreement, or that any merger, combination, or sale would provide liquidity for Purchasers. You should assume that this is a security you will hold.
There is no public market for, and the investor may be unable to sell, their preferred equity investment. The Company’s offer and sale of the preferred equity will not be registered under the Securities Act or under any state securities laws. No transfer of the preferred equity may be made unless the transfer is registered under the Securities Act and applicable state securities laws, or an exemption is available. As a precondition to the effectiveness of any such transfer, the Company may require the transferor to provide it with an opinion of legal counsel stating that the transfer is legal and to pay any costs the Company incurs in connection with the transfer.
Convertible Debt Notes:
This security, also considered a hybrid security, offers investors the characteristics of debt notes (yield, coupon, maturity, capital structure priority) while including the option to convert notes into a predetermined amount of equity at the discretion of the individual specified in the security's terms. Typically this is at the discretion of the investor, but can be at the option of the company, and sometimes the conversion is pre-determined based on objective criteria. The investor’s risk/return profile once converted, changes from a bondholder to an equity shareholder. Unless and until converted into equity securities of the Company, convertible notes typically have no voting rights or other rights associated with equity securities of the Company. The Notes are a debt instrument and noteholders will have no voting rights or other ability to influence any actions of the Company.
For the Debt Component: See the risks above titled “Debt Notes.”
For the Equity Component:
Unlike a noteholder, an equity investor is not entitled to any specific payment, so the investor must bear the economic risks of its investment for an indefinite period of time.
Valuation risk — While the Company may believe that the conversion rates are generally reflective of market terms for an investment of this nature, there is currently a very limited market of comparable offerings to reference; the lack of track record with most startups makes pricing an option for the equity additionally challenging. Once converted into equity, there will continue to be valuation challenges given the private nature and limited track record of the company. Unlike listed companies that are valued publicly through market-driven trading, the valuation of securities of private companies, especially startups or in early stages, is difficult.
There is no public market for, and the investor may be unable to sell, the equity securities into which the Notes are convertible, and a trading market for the equity securities of the Company may never develop.
No transfer of the equity securities into which the Notes are convertible may be made unless the transfer is registered under the Securities Act and applicable state securities laws, or an exemption is available. As a precondition to the effectiveness of any such transfer, the Company may require the transferor to provide it with an opinion of legal counsel stating that the transfer is legal and to pay any costs the Company incurs in connection with the transfer.
In addition, Rule 144, which permits the resale, subject to various terms and conditions of restricted securities after they have been held for one year, does not apply to the equity securities of the Company, because the Company is not required to file and does not file, current reports under the Securities Exchange Act of 1934, as amended.
The Company cannot assure the investor that the Company will become a reporting company in the foreseeable future or that any market for its stock will develop at any future date or that such market, if any, will be sufficiently active to provide liquidity.
Under certain circumstances, if provided in the offering’s agreement, the Notes, at the option of the Company, may be converted into equity interests of the Company, even if the investors do not wish the Notes to be converted, or the terms of the conversion are unfavorable to investors.
Distribution and Voting Rights - Payment of distributions is a business decision made by the company based upon results of operations and financial condition and any other factors that the management considers relevant. Depending on the type of equity the note converts to, as described in the terms of the Notes, there may be other classes of stock ahead of you. It is likely that the equity will not have voting rights and will not be able to influence the decisions of the company including to pay dividends. Rights, preferences and privileges may be adversely affected by those of other classes of equity.
Dilution and Minority Holder - Investors should understand that their equity is subject to potential dilution should the company issue additional shares, which means that investors will have a smaller percentage ownership of the company. Owning less means there are more investors to share in distributions, and to the extent the investor has the ability to influence the actions of the company, will have less ability to do so.
Simple Agreements for Future Equity (SAFE):
SAFEs were first developed in Silicon Valley to enable investors to quickly invest in startups without burdening them with the complexities of equity issuances. This enables investors to lock in their rights to equity without forcing the startup to issue equity at the moment of the transaction. Typically, SAFEs are dependent upon pre-defined events in which investors become entitled to predetermined equity ownership. Common triggers may be an additional round of private financing, the sale of the company, or an Initial Public Offering. However, these terms vary by SAFE issuance and investors must pay attention to the specific terms on offer.
The Securities will not be freely tradable under the Securities Act until one year from the initial purchase date. Although the Securities may be tradable under federal securities law, state securities regulations may apply, and each Investor should consult with their attorney.
You should be aware of the long-term nature of this investment. There is not now and likely will not ever be a public market for the Securities. Because the Securities have not been registered under the Securities Act or under the securities laws of any state or foreign jurisdiction, the Securities have transfer restrictions and cannot be resold in the United States except pursuant to Rule 501 of Regulation CF. Limitations on the transfer of the Securities may also adversely affect the price that you might be able to obtain for the Securities in a private sale. Investors should be aware of the long-term nature of their investment in the Company.
Depending on the structure of the SAFE, Investors may not become equity holders until the Company decides to convert the Securities into SAFE Stock (the specific type of equity securities issuable upon conversion of the Securities will be defined in the offering terms) or until there is a Liquidity Event, Conversion Event, or Dissolution event, as defined in the SAFE. Investors will not have the right to inspect the books and records of the company or to receive financial or other information of the company, other than as required by law. Other security holders may have such rights. Under Regulation CF, the company is only required to provide an annual report once a year and in certain circumstances this may mean only one annual report.
Investors will not have an ownership claim to the Company or to any of its assets or revenues for an indefinite amount of time and depending on when and how the Securities are converted, the Investors may never become equity holders of the Company. The Company is under no obligation to convert the Securities into SAFE Stock unless a Conversion Event, Liquidity Event or Dissolution Event is initiated by the company’s Board of Directors, or as described in the terms of the SAFE. In certain instances, such as a sale of the Company or substantially all of its assets, an initial public offering or a dissolution or bankruptcy, an Investor may only have a right to receive cash, to the extent available, rather than equity in the Company.
Although the Company intends to convert SAFE investors as soon as practicable through commercial or impact success, the Company may never conduct a future equity financing or elect to convert the Securities whether or not such future equity financing does occur. In addition, the Company may never undergo a Liquidity Event or Conversion Event such as a sale of the Company or an Initial Public Offering. If neither the conversion of the Securities nor a liquidity event occurs, Investors could be left holding the Securities in perpetuity. The Securities have numerous transfer restrictions and will likely be highly illiquid, with no secondary market on which to sell them. The Securities are not equity interests, have no ownership rights, have no rights to the Company’s assets or products and have no voting rights or ability to direct the Company or its actions. In the event of dissolution or bankruptcy, investors that have not been converted are unlikely to recover any proceeds; where the holders of the SAFEs stand in line for proceeds is outlined in the terms.
Equity securities issued upon conversion of the Securities may be substantially different from other equity securities offered or issued by the Company at the time of conversion. Investors will have no voting rights, and even after conversion, the Stock may have no or limited voting rights as described in the terms of each SAFE offering.
This Blog is for discussion purposes only, expresses the views of Raise Green, and is not investment research. This is not investment or tax advice, and does not constitute a solicitation to sell or an offer to buy any securities. Certain information is from or links are to third party sources. Although they are believed to be reliable, we do not guarantee their accuracy, completeness or fairness. Raise Green is a registered Funding Portal with the SEC and FINRA, and is not a Municipal Advisor. Prior to being approved to list a company on the Raise Green portal, a diligence review is completed. Prior to investing. investors must sign up for an account on the portal. Raise Green does not provide tax, accounting or legal advice. Investing in crowdfunded offerings involves risk and you should review the risks of a particular investment prior to investing. You are strongly encouraged to consult your professional advisors before investing. Go to www.raisegreen.com for additional information on services, the funding portal, regulation, and investment risks. Or, direct inquiries to firstname.lastname@example.org. Copyright © 2021.