1. Who is eligible to support an intrastate campaign?
Only legal residents of the State in which the business running the campaign is located are eligible to participate. All persons wishing to invest (or lend) in a campaign will be required to certify as to their State of residency and provide supporting documentation. Businesses running a campaign and SparkMarket may take additional steps to verify a backer’s legal residency.
2. Do I have to create an investment account?
No. Unlike offerings made through broker/dealers or certain funding portals, SparkMarket does not require you to create an investment account prior to committing to support a campaign or investing (or loaning funds) in that campaign. You will be required to create a SparkMarket profile, but not an investment account.
3. How will I be notified of a campaign?
Campaigns are open to the public (who are residents of the applicable State), but the business running the campaign has control over access to the campaign site. Thus, you may be invited to participate through a connection to the business, the business’ website, an advertisement, a social media contact, a mutual connection or any number of other methods. Once you certify as to your eligibility you can commit to support a campaign through their campaign page.
4. Am I buying a piece of the business in a campaign?
It depends on the type of offering (which will be identified in the campaign landing page). Only investors in equity offerings are purchasing actual ownership in the business. For debt and convertible debt campaigns, you are acquiring a right to repayment on the terms provided in the campaign and related campaign documents. Thus, you will have the rights of a creditor of the business, but not an equity investor (until after a conversion event, if any).
5. How will I be communicated with during the campaign?
You will be contacted by SparkMarket only through the primary e-mail address that you provide when creating your profile. The business will have access to contact information for all backers who provide commitments and may contact you with additional eligibility questions as well.
6. Can I invest in or loan to a campaign through an entity?
Yes, but that entity must also be organized in the State where the campaign is eligible to conduct its offering. Also, there are certain restrictions related to ownership of that entity that must be verified. If you wish to invest in/ loan to a campaign through an entity, contact SparkMarket for further instructions.
7. How much can I invest in (or loan to) a campaign?
Businesses establish a maximum campaign amount, and aggregate commitments will not be accepted above that amount. The business may also establish a maximum amount that any one investor or lender may invest or loan. If no maximum is provided, then investors/lenders will be limited to a maximum commitment of $10,000, unless such investor/lender qualifies as an “accredited investor” under rules established by the SEC, in which case there is no limit on individual contributions.
8. How does a commitment work?
SparkMarket’s campaign tools work on a “commitment” basis. Thus, persons who wish to be investors or lenders in a campaign can “commit” to support that campaign at the funding level they select. This will serve as their commitment to submit invest or loan at the specified amount if (but only if) the campaign successfully reaches its minimum level of commitments. Until such time, backers are not required to submit any funds.
9. How do I complete my investment or loan, and when do I have to submit my funds?
Once a campaign reaches its minimum level of commitments, it will move to close the campaign. SparkMarket will then contact all persons who have committed to supporting the campaign with instructions for signing the necessary deal documents submitting their investment payment.
All backers must execute a copy of the legal documents and submit payment to complete their investment or loan.
All offering funds will be held in escrow until the campaign escrow is closed.
10. Must campaigns reach a minimum level of funding to close?
No. With that said, SparkMarket requires all businesses to set a minimum level of commitments that must be received before the business can move to close the campaign.
However, once the minimum commitment level is reached, all actual subscription funds collected may be used by the business as and when received, and there is no minimum level of investments (or a loan) needed to break the escrow and close the campaign. Thus, once a backer submits its funds (and provided that the business accepts such subscription) funds will not be returned to the backer, even if the level of funds received is less than the level of commitments which were received in the campaign.
11. Does a business have to accept my money?
No. The decision to accept an investment or a loan from any individual backer is always left in the hands of the business itself. A business may choose to accept or reject your investment or loan in its campaign for any reason, or no reason.
12. Are securities issued in the campaign transferable?
No. All securities (promissory notes, share certificates or convertible notes) issued in any campaign using SparkMarket’s tools will be non-transferable. Transfer may only occur in the sole and absolute discretion of the business issuing the securities, and, in any event for a period of nine (9) months from the last sale of a security in the offering, any permitted transfers must be made to persons who are a resident of the State in which the offering is being conducted.
13. How will the business communicate with me following the campaign?
Following completion of a campaign, a business has the responsibility to communicate with its backers directly, and they will have the contact information you provided to SparkMarket. That communication may be about the campaign, payments related thereto, tax documentation requests, the business generally or other purposes.
SparkMarket will not communicate with backers directly about any investments or loans, but may communicate with backers and users of its services generally.
14. How and when will I get repaid?
For debt offerings, repayment of the principal and interest which the business owes you will be dictated by the terms chosen by the business and reflected in the Note Purchase Agreement and your individual Promissory Note. Generally, using SparkMarket’s tools, a business will have a monthly repayment schedule of principal and interest.
For an equity offering, you do not get “paid back” in the traditional sense. Rather, you have purchased an ownership stake in the business company that entitles you to certain benefits of ownership, which may include voting rights and distributions of profit.
For a convertible debt offering, backers either get repaid (typically a lump sum at the maturity date) or your interest converts to equity at a valuation established at the time of conversion.
15. What are the tax consequences and documentation aspects of my investment?
SparkMarket is not a tax adviser to any business or investor/lender, and you are encouraged to consult a competent tax professional regarding the tax consequences of your investment. Generally, businesses will be required to obtain a W-9 from each investor, and will be required to issue a Form 1099 annually to each investor reflecting any payments made on the loan. Investors in limited liability companies should also be issued a Form K-1 on an annual basis
16. If a business chose a “Spark” in their campaign, when will I know if the Spark goal was reached, and what will I receive?
If the business has chosen to attach a special “Spark” incentive to their campaign, they will be solely responsible to track its progress on such goals and communicate to its backers regarding it progress on that goal. Generally, if the goal is met, the backers will receive the incentive attached to the Spark directly from the business at or following the maturity of the loan or other specified time.