Return-based Crowd-funding - Pt.1 - What is a security?

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Presented by: Tabitha Creighton, CEO and Co-founder What is a security? Pt.1 in the Securities Primer Series

description

Crowdfunding can either provide rewards or returns to supporters and investors. We help you learn the basics with our series on Return-based Crowd-funding. Starting with "What is a Security", and in future issues we'll cover "How to Issue a Crowd-funded security" and "How to invest in a Crowd-funded security".

Transcript of Return-based Crowd-funding - Pt.1 - What is a security?

Page 1: Return-based Crowd-funding - Pt.1 - What is a security?

Presented by: Tabitha Creighton, CEO and Co-founder

What is a security?

Pt.1 in the Securities Primer Series

Page 2: Return-based Crowd-funding - Pt.1 - What is a security?

How can businesses raise money?

• 3 ways

– Sell its products or services

– Borrow money from a lender

– Issue securities

Page 3: Return-based Crowd-funding - Pt.1 - What is a security?

What’s a security?

• A legal interest in some element of the business that has

potential future value for the purchaser that can be sold in

some form

• Examples: note, stock, treasury stock, security future,

security-based swap, bond, debenture, evidence of

indebtedness, certificate of interest(Taken from the Securities Act of 1933)

Page 4: Return-based Crowd-funding - Pt.1 - What is a security?

Securities are the oldest form of raising money

Then

• Promising a share of crops in exchange for providing money for seeds (or seeds themselves)

• Promising a share of future revenue in exchange for money to buy a new piece of equipment

• Selling a portion of the future treasures from a financed exploration

• Promising to pay back money borrowed with interest

Now

• Commodities Exchanges

• Revenue-sharing or royalty

agreement

• Equity

• Promissory Note/Debenture/Bond

Page 5: Return-based Crowd-funding - Pt.1 - What is a security?

What gets sold?

• A legal interest in some element of the business that has potential future value for the purchaser that can be sold in some form

• Examples of what can be sold

– Portion of future revenue

– Portion of the company ownership

– Commitment to pay back borrowed money

– A share of revenue when goods/services are sold at a specific price

Page 6: Return-based Crowd-funding - Pt.1 - What is a security?

Securities can be more or less speculative (risky)

Security

– Portion of future revenue

– Portion of the company ownership

– Commitment to pay back borrowed

money

– A share of revenue when

goods/services are sold at a specific

price

Inherent Risk

– Return is based on how much future

revenue is actually generated

– Return is based on how valuable the

company becomes

– Return is based on whether the

borrowed money is repaid)

– Return is based on whether the

intended price is achieved)

Page 7: Return-based Crowd-funding - Pt.1 - What is a security?

Securities can become riskier based business performance

Ex. Of Business Performance

• Revenue growth and stability

• Net profitability over time

• Existing and previous debt

obligations

• Product/service quality

• Industry and other factors the

business can’t control

Securities at Risk

• Portion of future revenue

• Portion of company‘s ownership

• Commitment to pay borrowed

money

• Share of revenue when

goods/services are sold at a future

price

Page 8: Return-based Crowd-funding - Pt.1 - What is a security?

Private vs. Public Securities

• Private

– Not issued or traded on public markets

• Public

– Issued or traded on public stock markets

• (There are also government securities (e.g. Bonds, Treasury bills,

Currencies), which are traded publicly

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Primary vs. Secondary Markets

• Primary market

– Any market where a security is sold by a company for the first

time (business to investor)

• Secondary market

– Any market where a security is traded beyond the first time

(investor to investor)

Page 10: Return-based Crowd-funding - Pt.1 - What is a security?

What kind of businesses can issue securities?

• Businesses can issue any type of security which is

relevant to their structure and purpose

• Examples:

– A sole proprietorship could issue a debt security but not sell

shares

– A government could issue treasury bills but not sell warrants for

future equity

– A corporation could sell shares but not issue currency

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How do you sell/how do you buy?

• Stay tuned for our second presentation on how to sell and

buy securities…

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And remember…

Issue local, invest local, and prosper more!

www.investnextdoor.com