Frequently Asked Questions
- What is Co.Fund?
Co.Fund is an online marketplace of private investments based in NYC. Co.Fund is committed to building a transparent investment community utilizing lead-investor model.
- Who is Co.Fund for?
Co.Fund members include project sponsors, sophisticated lead investors, high-net-worth-individuals and other professionals such as lawyers, accountants who have an eye for investment opportunities. Project sponsors are looking to raise money and increase exposure to international market; Institutional investors are looking to diversify their portfolio; High-earners are looking to have more personal choice over their investments; Private investors who have participated in private investments before, and want to carry on investing without the legal hassle, or without having to get deeply involved with each business, while retaining the peace of mind that having a lead investor involved in the companies they are investing in.
- How does Co.Fund work?
Co.Fund can help sponsors simplify and speed up the fundraising process; access a network of accredited investors from around the world; host virtual fundraising sessions from your desk; streamline investor pitches, execution of legal documents, and processing of investments. The lead investors negotiate with project sponsors to arrive at a fair valuation, and conduct their own due diligence to satisfy putting their own money in. Individual investors will have the opportunity to invest alongside lead investors to access the same quality deals and legal protections. Individual investors can make an investment online; use automated investor accreditation tools and review the company’s offering materials online.
- How are we different?
Co.Fund members are able to invest in private companies alongside active lead investors. This means that for each deal with the status of open to all, there is always a lead investor investing their own capital into the company. For each deal the investor gets to decide on whether to invest and how much to invest (minimum investments apply), always knowing that the valuation of the business has been the result of negotiations between a sophisticated leading investor and the sponsors, resulting in a much fairer and more attractive valuation for smart investors. The lead investor's interests are aligned with following investors, and so is their risk and exposure. The investment deals available to our members vary from seed investment to companies that have not yet stated trading, to well-established companies that are unable or unwilling to secure lending from a bank to finance their growth. We present investment deals in a variety of sectors. Investors can analyze the details of each deal, carry out their own due diligence, communicate with the respective sponsors and/or with other investors, and then make a decision about whether or not to invest. Decide whether to invest and how much. We will take care of the rest.
- How does Co.Fund protect my information?
Your trust in us and the security of your information is core to our business and a top priority at Co.Fund. We adhere to best practices such as browser encryption, store all of our data on servers in secure facilities, and implement systematic processes and procedures for securing and storing data. Communication on the platform is encrypted via SSL during transit and bank level encryption is utilized for sensitive information. We limit access to your personal and financial information to only those employees with authorized access.
- Who is a lead investor?
Lead investor may be representative of an institution or an individual investing alone. The lead investor is generally willing to contribute their time and experience to the investee company, not just their capital, although they are not necessarily the largest or best known investor on a funding round. The lead investor could be either investing in the company for the first time as part of this funding round or an existing shareholder investing again. There might be some differences in the terms between following investors and the lead investor. These differences might be the right to appoint an investor director or a board seat - terms that are generally not feasible for every investor to have. On some funding rounds there will be two share classes on offer, for example preference shares negotiated by a VC. A lead investor usually share carried interests on following investors for investing in the company, often to contribute towards additional advice or support. Co.Fund will make the details of these fees visible on the company's fundraising page.
- What is lead investment?
Deals that have 'lead investment' means companies with a significant amount of their funding round negotiated and committed by a lead investor. Following investors can get access to the investment with the same share class and share price, and ensure that some required additional protections are in place (drag along and tag along, pre-emption and pro-rata voting rights). This way the following investors' interests are aligned with the 'lead investment'. Each company should have about 20-25% of their round in place as 'lead investment'. For example, if a company is raising $1 MM, they need to first raise at least $200,000 before the project's status becomes 'open to all' on Co.Fund. Most or all of the lead investment is likely to be 'new money', from an investor investing in the company for the first time. If there is no new money, we ensure that there is significant 'follow on' money from existing investors. We review what 'significant' means on a case by case basis - we'll look to see what proportion of investors are taking up their pre-emption rights, as well as how many are investing above and beyond these.
- How do I become a leader?
To apply for leader membership, click the 'apply for leader' button on your user dropmenu. You can then enter information about your typical investment size, investment strategy, success cases and so on. Leader status will be awarded upon approval from account manager and successful payment for monthly membership.
- What are the leader benefits?
Leaders can send lead talk invitation or receive projects delivered from sponsors. Once leaders agree on a term sheet with a sponsor, leader can complete the leader investment process; Leader can share the carried interest of following investments.
- What is minimum I have to invest in each deal as lead?
The minimum investment for a lead who is investing her own money is generally 25% of the amount that the sponsor intends to raise.
- What is the leader's carry?
Carry is a share of the profit of an investment that is paid to the managers of the investment. It is short for 'carried interest'. In a VC fund, the limited partners of the fund pay carry to the general partners if the entire fund is profitable. This is called fund carry or net carry. In Co.Fund, following investors pay carry to the leader for any profitable investment. This is called leader carry. When project sponsor make distributions to investors, upon the rate of return agreed upon; each distribution has two parts, principal and earnings; For the earnings part, lead investor will receive 'lead carry' which is a precentage of the pro rata earnings of following investors.
- Who handles tax documentation?
You will receive K-1’s annually, as needed. Be sure to consult your tax advisor.
- How does investing in Co.Fund different from investing in a VC fund?
Co.Fund investors choose which company they want to invest in and can stop investing any time; 1. Co.Fund have much lower minimum investments; 2. Leads typically do due diligence on each investments; 3. Co.Fund use leader carry to better align lead investors' interests with following investors; 4. Co.Fund charges a smaller management fee.
- What are the tax consequences for non-U.S. investors in syndicates?
For each deal, investors become members in a special-purpose vehicle, structured as a US series LLC. Each SPV will typically send out IRS Forms K-1 to all its members, both foreign and domestic, in any year in which it has taxable income or deductible expenses. We understand from informal consultation with tax counsel that, generally, income and distributions from Co.Fund syndicated deals to non-US investors without substantial US business involvement are exempt from US tax and withholding requirements, provided that such investors have submitted the appropriate FATCA Related Forms. Co.Fund is not qualified to provide tax advice and the above should not be read as tax advice. There are many important exceptions to the generalization stated above, so please be sure to consult your tax advisor and relevant international tax treaties before making an investment.
- What documents do I sign?
You sign documents to invest in a special-purpose vehicle that invests in the company. This signature is provided by simply checking a box. You do not sign the company's financing documents.
- What information rights do I have?
Co.Fund investors receive less information than direct investors. A Co.Fund entity or the leader will distribute the following documents to investors when they invest in a deal: Documents related to the SPV's formation such as its operating agreement, private placement memorandum and subscription agreement. General terms of the investment, if the company permits. Templates of deal documents signed by the fund may also be made available to investors. Qualitative updates on the company status, if available. This is high-level information similar to the information VCs provide to their LPs. For example, it may include information about the company's customers or financing. It will generally not include any figures. Any information investors need for taxes, such as K-1s, is distributed annually.
- Are there any fees for Investors?
We make our money by charging a one time 2% investment management fee, and 5% carry.
- Is it legal to use Co.Fund to raise money?
Yes. Using Co.Fund to raise money is legal. It doesn't impose any more legal burdens to an entrepreneur than raising money offline.
- Why are we different?
1. Full compliance, one of the pioneers to support all kinds of exemptions; 2. Multiple Language support, access to investors who are otherwise impossible to reach; 3. Concurrent raisings with different exemptions at the same time to maximize your exposure; 4. Access: Your business is exposed to our network of high-net-worth and sophisticated investors; 5. Smart money: Our experienced and engaged investors can offer more than just capital; 6. Diversity: It's not just tech and B2C. Our investors look far beyond the normal Crowdfunding limits, helping us lead in areas such as real estate, life sciences and engineering; 7. Less admin: Our nominee structure means that you manage just one legal shareholder; 8. Efficiency: Raising funds typically takes weeks, not months. 9. Transparency: Total transparent investment process.
- What sectors does Co.Fund raise finance for?
Co.Fund raises finance for companies operating in most industries. However, we have strong principles and will reject any companies that propose to carry out business related to weapons, gambling, illegal drugs or any other activity we do not agree with, even if the business model is entirely legal. Needless to say, we refuse to work with any companies proposing to carry out any illegal activities. If you have any doubts as to whether your business proposal fits with our principles then it probably doesn't.
- How to build a Co.Fund profile that unlocks investment?
A successful Co.Funding campaign doesn't catch fire by itself—it needs to be driven from start to finish and gain momentum by getting it in front of investors with an integrated marketing strategy. It starts with providing a compelling business offering with a lead investor already attached who has solidified the terms of the deal. It's then up to you to build a great profile and launch a marketing campaign around your Co.Funding campaign. We've helped you by compiling the different ways you can effectively market your Co.Funding campaign. 1. Create Profile That Unlocks Investment: Company Profile; Video (2-3 Mins); Product Images; Business Traction Points; KPI's; Team; Key Customers & Partners; Press mentions; Testimonials; 2. Investment Profile: Fundraising Documents; Investor Pitch Deck; Term Sheet; Executive Summary; Subscription Documents; Highlights; Investors; Previous Funding; Fundraising Goal; 3. Press: Issue a press release highlighting your Crowdfunder deal; Tell a bigger story; Hit all the relevant verticals; 4. Leverage Social Media Channels: Facebook; Twitter; LinkedIn; 4. Activate your Stakeholders: Investors; Board Members; Advisors; Friends & Family; Board Members; 5. Company Website: Homepage banner linking to your Co.Fund deal; Post to blog; Syndicate the blog out to your network; Send blast to company mailing lists; 6. Perks: Create a set of perks that are unique to your business to incentivize investors to close quickly; Create experiential marketing opportunities that money can’t buy; 7. Actively Follow-Up with Interested Investors: Don’t let pending requests sit in your Deal Admin. Make sure to follow-up with each investor within 24 hours and make yourself available – this is critical
- What are the fees for companies listing on Co.Fund?
Companies pay a 4-8% commission plus a banded monthly fee on funds raised from Co.Fund investors, together with a $1,500 setup fee; 0% will be charged on money raised from investors that companies themselves bring to the round. The banded monthly fee is either $1000 or $2000 per month, depending on the number of Co.Fund investors received. These staggered costs mean that companies will keep more of the capital raised at a time when they need it most, and will be able to spread their payments to make them more manageable.
- Do follow investors receive pro rata rights?
Co.Fund receive pro rata rights if the lead negotiates them with the company. If a SPV has pro rata rights, Co.Fund investors in the initial round may have the opportunity to invest their pro rata allocation in subsequent financings. Any remaining allocation may be offered to other investors or funds. The pro rata may not be offered to following investors if the lead does not participate, if it is unlikely that a reasonable amount of the pro rata will be filled, or for other reasons.
- Do syndicate investors count towards my company's shareholder limit?
No. A SPV only adds two investors to the company's cap table and syndicate investors should not be counted toward the SEC's limit of 2000 shareholders of record that private companies must observe.
- What is the 99-investor limit?
Due to securities regulations, syndicates can only accept 99 investors in a deal. A small number of investments support qualified purchasers who are exempt from this requirement.
- What is a Special Purpose Vehicle?
A Special Purpose Vehicle (SPV) also referred to as a Special Purpose Fund (SPF) or LLC, is a fund that is created to pool many smaller ticket investors together. This fund will then invest directly into a company as a single entity and single line on the company's cap table.
- Does Co.Fund do due diligence on Deals that are fundraising?
Co.Fund only does basic legal due diligence on deals that raise on the platform. Most deals, however, have a lead investor that has done diligence on the company ahead of making their investment.
- How does the Co.Fund SPV work?
Very simply: it acts as a go-between for you and the companies you invest in, to ease the admin burden. The SPV is the legal owner of your investments, but you remain the beneficial owner and retain full economic rights to your shares. This arrangement is created at the point when you decide to invest. The SPV will keep share certificates on your behalf, so neither you nor the company you've invested in have to worry about burdensome paperwork. You will still receive a confirmation of your investment to keep hold of. Importantly, the SPV will not decide how to vote or take decisions on your behalf – it will simply collect your vote or decision and pass this onto the company. SPV will provide company updates and administer your investment in the case of dividend payments or an exit. In the unlikely event that SPV service provider cease trading, shares held by the nominee will be transferred to you as the beneficial owner, who will then become the direct shareholder; alternatively you can instruct that the shares are transferred to a replacement nominee of your choice.
- How can investors receive investment updates?
Porject sponsor will provide any company updates and an annual review of all your investments.
- Can a non U.S. citizen invest in companies on Co.Fund?
Yes, as long as the country they are from permits it. Ultimately, it is up to the discretion of the entrepreneur whom they will allow to invest in their company.
- Can a U.S. citizen invest in a Chinese company on Co.Fund?
- What to know about Title III?
With the passing of the Title III of the JOBS Act on May 16th, the rules and regulations regarding equity crowdfunding are undergoing a momentous shift. Here's a quick summary on what Title III entails: Entrepreneurs A company can raise a maximum aggregate amount of $1 Million through crowdfunding offerings in a 12 month period Offerings must be made via Broker-Dealer or Portal Intermediary Companies must provide detailed disclosure of corporate and financial information Less than $100K – sign off from company officer $100K – $500K – reviewed by public accountants $500K+ – first-time fundraisers must be reviewed by public accountant, others must submit a full audit Non-Accredited Investors Investors making less than $100,000 per year can invest the greater of $2,000 or 5% of their annual income Investors making greater than $100,000 per year can invest up to 10% of their annual income
- What is Title IV of the JOBS Act?
Title IV allows startups and later stage pre IPO companies to use equity crowdfunding platforms to raise as much as $50M from both accredited and non-accredited investors. Title IV is broken up into two tiers, Tier 1 and Tier 2. Tier 1 allows you to raise up to $20M while Tier 2 allows you to raise up to $50M. Check out the key differences between the two tiers below. Tier 1 - Raise up to $20M Anyone can participate You can publicly advertise Reviews financials Must pass a state coordinated review No limit on investment Tier 2 - Raise up to $50M Anyone can participate You can publicly advertise Preempts Blue Sky Laws in each state Requires Audited Financials Non-accredited limit at 10% of income/net worth per year.
- What steps do I need to take if I want to fundraise under the Regulation A+ exemption?
Tier 1 File a disclosure document with the SEC and get approval Have your financials reviewed Must pass a state coordinated review Tier 2 File a disclosure document with the SEC and get approval Financials audited Disclosure requirements: annual, semi-annual and current reports
- Do I still need to verify my investor status?
If you are an accredited investor you should still verify your accredited status to get access to the deals that are not raising under the Title IV Regulation A+ exemption.
- What restrictions are there for non-accredited investors investing in Reg A+ deals?
For Tier 1, the investor has no restrictions on the amount they investment. For Tier 2, non-accredited investors have caps on how much they can invest. They can invest a maximum of 10% their annual income/net worth per year, depending on which is greater.
- What is an accredited investor?
An Accredited Investor is defined by the Securities and Exchange Commission as someone who meets at least one of the following requirements: Individual net worth, or joint net worth with your spouse exceeding $1 million (excluding the value of one's primary residence) Income exceeding $200,000 in each of the past two years and expects the same this year Income (with your spouse) exceeding $300,000 in each of the past two years and expects the same this year Any entity in which all of the equity owners are Accredited Investors Invests on behalf of a VC firm or other registered investment company Invests on behalf of a business with $5 million in assets and which was not formed for the specific purpose of acquiring the securities offered
- What is a Non-Accredited Investor?
A Non-Accredited Investor is any individual or entity that does not meet the definition of an Accredited Investor. Non-Accredited Investors are able to indicate investment interest in companies testing the waters for a potential future offering under Regulation A, and invest in those companies that later choose to proceed with an Offering under Regulation A or Regulation CF. Only Accredited Investors can make investments in Offerings under Rule 506(b) and 506(c) of Regulation D.
- How can I verify that I am an Accredited Investor on Co.Fund?
To be an accredited investor, you must meet a certain level of wealth defined by the SEC. For example, a person having at least $1 Million in assets excluding their main residence, or an income greater than $200,000 ($300,000 if filing jointly) in each of the past 2 years, would qualify. If you meet the SEC criteria, verify your Accredited Investor status now to get access to Investment Deals on Co.Fund. If you are an Accredited Investor, simply login and click the following link. From there, check the 'I'm an Accredited Investor' box, which will then allow you to fill out a questionnaire to verify your accredited status on Co.Fund.
- What is an investor account?
An investor account is a repository for funds. You can transfer funds from your bank to your investor account and use those funds to invest in companies. You can also use the account to receive distributions when one of your investments has an exit.
- Can I get my funds out of my investor account?
Yes, you can withdraw funds to your bank at any time. Withdrawals take 3-7 days.
- Does my investor account earn interest?
At this time, investor accounts do not earn interest. Co.Fund also does not earn interest from your funds.
- Are my funds insured?
Yes, funds are FDIC-insured.
- What are the tax consequences of using an investor account?
There are no tax consequences. Your funds do not earn interest and are not considered an investment.