MemberApril 22, 2020 at 8:40 am
I was wondering if the Funding Portals could scam us out of our money. How do we know for sure that they are legit?
AdministratorApril 22, 2020 at 9:33 am
Hi Orett – good question, and definitely one that is on the minds of many startup investors (and founders) when considering which website to use to invest or raise capital.
What is a funding portal and are they required in Reg CF?
First, it’s important to understand that in order to legally raise funds using Regulation Crowdfunding (Reg CF), companies are required to use a third party crowdfunding intermediary, which can be one of two types of entities in Reg CF:
1. Registered broker-dealer, or
2. Funding portal
Funding portals and BDs must be registered with the SEC and a member of FINRA.
How to verify a funding portal is legitimate?
In order to verify that a Reg CF funding portal is legit, the easiest way is to use FINRA’s page called Funding Portals We Regulate.
This lists all registered (active) funding portals. It lists the legal name of the portal, as well as the URL, so you should ensure that both match on the website that you are considering.
Now, to get to the crux of your question, you really need to consider two things, since it isn’t only the funding portal that you have to worry about.
In addition to reviewing the legitimacy of the funding portal, you obviously also need to do your due diligence into the issuer (i.e. the company raising capital) that you are considering investing in.
While Reg CF has been fortunate enough to not have any fraud in the first three years, as with any investment, while the risk may be small, it is not zero; thus, always ensure you are following appropriate diversification and allocation strategies.
Hope this helps!
MemberApril 22, 2020 at 9:37 am
This was definitely informative. Thanks.
AdministratorApril 22, 2020 at 9:43 am
FYI – if you haven’t seen it already, we cover Reg CF intermediaries and funding portals in more detail in our Level 2 Startup Investing 101 course (free) here – https://crowdwise.org/lessons/where-reg-cf-intermediaries-and-websites/