Return-based Crowd-funding - Pt.1 - What is a security?
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Transcript of 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
How can businesses raise money?
• 3 ways
– Sell its products or services
– Borrow money from a lender
– Issue securities
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)
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
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
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)
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
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
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)
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
How do you sell/how do you buy?
• Stay tuned for our second presentation on how to sell and
buy securities…
And remember…
Issue local, invest local, and prosper more!
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