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How to learn how equity crowdfunding works?

FauxPas

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Hello, I'm new to the equity crowdfunding world, I've searched for hours on the internet and so far I can't find anything that comprehensively explains how it works. Like I don't understand what valuation cap, discount, pre money, post money valuation, means. I also don't know if this means my stake can get diluted. I can't understand for f*ck what it all means and how much the potential return could be. Like for example let's say I'm investing $100 where the valuation cap is 9 million pre money valuation and the discount rate is 20%. What does that mean? It's raising $250,000. It's also a SAFE which from what I understand I'll get a return from VC's funding it. Assuming that VC's won't dilute my shares would be wise to hold on to the shares until it IPO'S?
 

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Putt

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Hello, I'm new to the equity crowdfunding world, I've searched for hours on the internet and so far I can't find anything that comprehensively explains how it works. Like I don't understand what valuation cap, discount, pre money, post money valuation, means. I also don't know if this means my stake can get diluted. I can't understand for f*ck what it all means and how much the potential return could be. Like for example let's say I'm investing $100 where the valuation cap is 9 million pre money valuation and the discount rate is 20%. What does that mean? It's raising $250,000. It's also a SAFE which from what I understand I'll get a return from VC's funding it. Assuming that VC's won't dilute my shares would be wise to hold on to the shares until it IPO'S?
Best intro to VC course is this one on Coursera.

Value cap relates to how many shares you would get during a trigger event if you were holding a convertible note. As an investor, you want a low value cap as it means you would get more shares for your money. Your USD debt value gets converted at the current share price into shares. The value cap is a cap on how much you can be expected to pay per share. So if the share price is now $2.25 but the value cap when divided by shares limited it to $2, you would get your debt divided by share price. In other words, you're converting to equity for less than the actual share price so you end up with a gain.

Discount rate is a cost of capital adjustment based on risk. Cost of capital considers the opportunity cost of investing money but discount rate is a reduction in company value due to risk. High discount rate = high perceived risk.

Pre-money and post-money valuation are ways of valuing a company including or excluding a round of investment. Here's a good chart:
dotdash_Final_Pre_Money_vs_Post_Money_Whats_the_Difference_Sep_2020-01-0a7184fe21204088baa6bfaa52db3217.jpg

If you buy at current 'actual' value, it won't make a difference, but if you invest at a premium or discount, it will skew the total value.

A SAFE (simple agreement for future equity) agrees to convert your debt investment into equity on the next capital event (including a funding round).

Obviously I can't give you my thoughts on what I think you should do and you should consult your advisory team before engaging in any transactions.
 

amp0193

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My only advice to you is don't invest in something unless you completely understand it.

Keep googling. Keep reading. It will take some time to digest.


Sounds like you might have some FOMO on this particular deal. Better to wait, until you understand what you're doing.
 

Private Witt

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Best intro to VC course is this one on Coursera.

Value cap relates to how many shares you would get during a trigger event if you were holding a convertible note. As an investor, you want a low value cap as it means you would get more shares for your money. Your USD debt value gets converted at the current share price into shares. The value cap is a cap on how much you can be expected to pay per share. So if the share price is now $2.25 but the value cap when divided by shares limited it to $2, you would get your debt divided by share price. In other words, you're converting to equity for less than the actual share price so you end up with a gain.

Discount rate is a cost of capital adjustment based on risk. Cost of capital considers the opportunity cost of investing money but discount rate is a reduction in company value due to risk. High discount rate = high perceived risk.

Pre-money and post-money valuation are ways of valuing a company including or excluding a round of investment. Here's a good chart:
dotdash_Final_Pre_Money_vs_Post_Money_Whats_the_Difference_Sep_2020-01-0a7184fe21204088baa6bfaa52db3217.jpg

If you buy at current 'actual' value, it won't make a difference, but if you invest at a premium or discount, it will skew the total value.

A SAFE (simple agreement for future equity) agrees to convert your debt investment into equity on the next capital event (including a funding round).

Obviously I can't give you my thoughts on what I think you should do and you should consult your advisory team before engaging in any transactions.

Thanks for the course info. Im considering a Reg CF raise as one of the routes I may be taking in 2021 and Ill be honest the information that is needed to be understood is staggering.

My only advice to you is don't invest in something unless you completely understand it.

Keep googling. Keep reading. It will take some time to digest.


Sounds like you might have some FOMO on this particular deal. Better to wait, until you understand what you're doing.

Amp, great to see you! Looking forward to catching up, you were the first person I talked to on the forum almost 3 years ago.

Amazing what FOMO does to people, learned to use as an advantage as a music event promoter.
 

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