Information that Investors on this site should know:
Buy The Block is like nothing seen before in the U.S. securities industry. Title II Crowdfunding is an old-fashioned private placement where you’re allowed to advertise. Title IV Crowdfunding is an old fashioned Regulation A offering – a mini-IPO – but with higher limits. Title III is brand new.
Modern U.S. securities laws – the laws that govern the sale of stocks, bonds, and other securities – date back to the first administration of Franklin D. Roosevelt. During that entire 80-year period, a company seeking to raise money could not advertise the offering or sell to more than a handful of non-accredited investors without registering with the SEC, a long and expensive process. Title III changes that.
Using Buy The Block’s crowdfunding portal, a developer in Des Moines, Iowa or Camden, New Jersey or South Central Los Angeles (referred to by the SEC as “Issuers”) can access every investor in the world at a modest cost, bypassing all the social, economic, and practical barriers that once stood in the way.
We’re going to see lots of Issuers using Buy The Block (on our site, we refer to them as “Block Developers”; similarly, we call investors on our site “BlockVestors”). We’re going to see a whole new ecosystem, which will complement, but not replace, the ecosystems around Title II and Title IV. We’re watching in real time the transformation of the American capital formation industry, and it’s pretty darned exciting.
What is the process for offerings, purchase, and issuance of securities through Buy The Block site?
A Block Developer may raise only $1 million during any rolling 12-month period using Buy The Block. The cap applies to affiliates of the Block Developer as well. Here’s how it works:
Offerings (how a Block Developer posts an offering);
- Block Developer create an account.
- Block Developer submits initial property information to Buy The Block; Legal Name, Company Details, Income, Property Details, etc.
- Block Developer Rep Contact Block Developer.
- Block Developer Rep ask for required information to determine if Block Offer can be posted on Buy The Block.
- Block Developer sell shares to BlockVestors in a structured entity (such as an LLC or C-Corp).
- Block Developer prepares a Private Placement Memorandum (PPM) and other legal / compliance documents to comply with securities regulations.
- Block Developer agrees for Block Offer to go through all Due Diligence before any Block Vestor can invest.
Our due diligence team works hard to provide feedback within 120 hours from when an offering is submitted.
Issuance (what happens to an Offering once it is approved onto the Buy The Block);
- Once approved, Block Developer can proceed to create an offer on Buy The Block.
- Once completed, Buy The Block pushes the offering live for pledges!
- Block Developer starts market their deal via many sources.
- Buy The Block notifies its community of BlockVestors of an approved Block Offering
- BlockVestors vote on the property and pledge the amount they would like to invest in the future.
- Once a property passes up votes and pledges, property then moves to open to investment.
- Block Developer contacts existing network of potential investors to publicize the Block Offering.
- Buy The Block performs the legally required certification and background checks for BlockVestors.
Only registered BlockVestors who have completed this process can view the specifics of the Block Offering, including the deal terms and invest
Purchase (how a BlockVestor purchases or invest);
- The process is easy.
- Create your account.
- View our block offerings
- Click the projects that make the most sense to you.
- Purchase your shares at your own convenience.
- Sit back and collect your distribution
- Share the properties you are buying, owning, building or selling with your peers via facebook and twitter.
What information are Block Developers Required to Provide to BlockVestors and what is the frequency of the delivery of that information?
A Block Developer is required to make extensive disclosures annually, primarily utilizing the SEC’s Form C, which must be publicly filed with the SEC no later than 120 days after the end of the fiscal year covered by the Form C. Below is a non-exhaustive list of the information that the Form C will contain for a given Block Developer, but which does not require the approval of the SEC:
- Name, address, website
- Directors and officers
- Each person’s principal occupation and on only one portal. employment for the last three years
- Names of each person owning 20% or more of the Block Developer’s voting securities
- Risk factors
- Business and business plan
- Use of the proceeds of the offering
- Ownership and capital structure
- Description of how rights exercised by the principals could affect purchasers
- Compensation paid to Buy the Block
- Descriptions of any previous offerings
- Insider transactions
- Discussion of financial condition
- Updates on the progress of the offering
- How the Block Developer will deal with oversubscriptions
*A sample Form C can be found here.
The Block Developer must continue filing Form C’s on an annual basis until the earlier to occur of:
- The Block Developer is dissolved under state law
- The Block Developer or another party buys all of the securities issued in the Title III offering
- The Block Developer has filed at least one annual report and has fewer than 300 shareholders of record
- The Block Developer has filed at least three annual reports and has total assets no greater than $10 million
*Note: At any time, due to changes in the law or otherwise, a Block Developer’s obligation to provide annual reports may terminate in the future.
*Another note: You should know that following completion of an offering, there may or may not be any ongoing relationship between the Block Developer and Buy The Block.
Are Block Developers required to provide any financial information to BlockVestors?
Yes! Along with all the other disclosures, the Block Developer is required to provide this financial information:
Where the amount of the Title III offering, together with all other Title III offerings of the same Block Developer within the last 12 months, is:
The Block Developer must provide:
$100,000 or less
More than $100,000 but not more than $500,000
More than $500,000
All financial statements must be prepared in accordance with GAAP. Financial statement reviews must be conducted in accordance with the Statements on Standards for Accounting and Review Services issued by the Accounting and Review Services Committee of the AICPA. Financial statement audits must be conducted in accordance with either (i) auditing standards of the AICPA, or (ii) the standards of the Public Company Accounting Oversight Board. These financial statements are not required to be audited or reviewed by a certified accountant, however, if a Block Developer has available financial statements that have either been reviewed or audited by a public accountant that is independent of the Block Developer, those financial statements must be provided.
Which types of securities that may be offered on Buy The Block and what risks come with them?
In exchange for an investment by a BlockVestor, a Block Developer may offer debt, equity, or some combination of the two (most commonly referred to convertible debt which may convert to equity upon certain events). Each type of security has distinct features and each carriers its own set of particular risks:
An offering where equity is provided involves giving BlockVestors a direct ownership interest in the Block Developer such as stock in a corporation, membership interest in a limited liability company, limited partnership interest in a limited partnership, or other form of ownership interest in an entity. Equity holders are generally entitled to profits of the Block Developer and may have certain voting rights which allows BlockVestors to help decide decisions made by the Block Developer.
While ownership in a Block Developer might seem preferable, equity securities are seen as riskier because many Block Developers are early stage and may not pay out profits anytime soon (if ever!). This is especially true given that Block Developer’s projects usually stem from a real estate project, which can take years to generate returns for BlockVestors. Additionally, while voting power might seem like a great perk, often times the terms of a given offering will only allow BlockVestors to have a small portion of voting power, which means your voting rights might be negligible at best in impacting the direction of the Block Developer. Lastly, equity offerings may be subject to “dilution” which is the event that occurs if a Block Developer decides to seek further investment rounds from new investors. Essentially, these new investors “dilute” the ownership (both in profit sharing and voting power) of the previous investors.
A debt offering involves the BlockVestors loaning money to a Block Developer. Mechanically, a BlockVestor loans the money and in return receives what is known of as a “note.” A “note” is a common term used in the lending industry and will generally entitle the “noteholder” to future interest and principal payments from the Block Developer. These payments can be payable in installments, monthly, quarterly, or annually. Alternatively, they can be paid as a lump sum with the principal due on the maturity date. BlockVestors become creditors of the Block Developer and typically have no voting or management rights. Which means that the BlockVestor may not have any power to affect the decisions made by the Block Developer.
While debt offerings are more predictable than equity offerings in generating returns on a consistent basis, they have limited return potential versus an equity offering. Also, if the Block Developer folds or dissolves, it is unlikely that a BlockVestor will be able to recoup the investment amount. Since early stage companies, especially those in the real estate industry expect losses for the first few years, they often find it difficult to pay BlockVestors every month or quarter when the cash would be better suited to keep operations progressing. Therefore, if you are considering an investment in a debt offering, carefully review and understand the terms of the note before investing.
Convertible Notes seemingly merge the best features of equity offerings and debt offerings. Essentially, convertible notes start out as pure debt offerings, but may convert to equity if future events occur. Most commonly, convertible notes convert to equity upon a future round of financing. This may guarantee BlockVestors early returns through the interest payments, with the potential for the future higher upside of being an equity holder. Convertible notes are not without their own risks. Before conversion, they are subject to the same risks outlined above with debt offerings, and after conversion, they are also subject to the same risks as equity. As with any offering, before investing in a convertible debt offering, carefully review and understand the terms of the convertible note before investing.
What are the risks associated with investing in securities offered and sold on Buy the Block’s site?
Securities sold through a crowdfunding portal, such as Buy the Block, have many risks associated with them including:
- Lack of Liquidity – In the securities realm, “liquidity” refers to the ability to freely transfer or sell a security. Securities sold through crowdfunding are thought of to be not very liquid compared to other securities such as public stocks and bonds. From a practical standpoint, for example, a share of stock in a Block Developer generally cannot be sold as freely as a share of Apple stock can be. Also, there are certain limitations on cancelling your investment once it’s locked in. For more information on the limited means that you can cancel a crowdfunding investment see below;
- Crowdfunded companies are inherently riskier – Most Block Developers are considered “early stage” and thus are not mature, which means that they might not be as stable as a company that has been in operation for many years. Similarly, many Block Developers have untested business models. What this ultimately means is that the companies featured on crowdfunding sites are inherently riskier than other investments and if you invest in one of them, there is a higher chance that the company could “go under” which means your investment could be lost entirely.
- Block Developers might not be profitable anytime soon – since these companies are just getting out of the blocks, they may not be returning profits (or dividends) to their shareholders anytime soon. It might be years before you see a single cent of return on a crowdfunding investment, if ever or at all.
- Lack of Information – While Buy the Block and Block Developers are required to provide certain information to BlockVestors, there is no guarantee that this information is accurate, complete or current. Additionally, companies who crowdfund have much lower informational requirements under law than publicly traded companies. This is why we advise BlockVestors to conduct their own thorough investigations of Block Developers. Ultimately, it may be difficult for you to find out how the Block Developer is doing and in turn, gauging how your investment is likely to perform over time.
Who Can Invest? And how much?
Generally, anyone can invest in an offering on Buy the Block, however, securities laws limit how much a BlockVestor – even those deemed “accredited investors” – may invest, in a single Block Developer. These limits are calculated during a rolling 12-month period and for a given BlockVestor may not exceed:
- the greater of $2,000 or 5 percent of the annual income or net worth of such BlockVestor, as applicable, if either the annual income or the net worth of the BlockVestor is less than $100,000; and
- 10 percent of the annual income or net worth of such BlockVestor, as applicable, not to exceed a maximum aggregate amount sold of $100,000, if either the annual income or net worth of the BlockVestor is equal to or more than $100,000.
EXAMPLE: Deshawn Jackson earns $100,000 per year and has a net worth of $150,000.
BlockVestor Jackson makes his first Buy The Block investment on November 17, 2017, investing $7,500 in Turnkey Restaurant / Event Center | 7,364 SF. On November 27, 2017, BlockVestor Jackson would like to make his second Buy The Block investment, investing $5,000 in Washington Park Shopping Center. Can he invest again? Yes, he can invest an additional $5,000 in Washington Park Shopping Center on December 27, 2017, as long as he does not exceed his cap of $15,000 per Block Offer (i.e., property). He can invest another $10,000, if he wanted to the following year on November 17, 2018. $10,000, if he wanted to) on December 1, 2018.
Spouses may combine their income and net worth.
What are the restrictions on the resale of securities offered and sold on Buy The Block?
Generally, securities purchased on Buy the Block may not be transferred (i.e., sold or liquidated) for at least one year, except:
- To the Block Developer
- To an accredited investor
- As part of a registered offering
- To a family member
What are the circumstances in which a BlockVestor may cancel an investment commitment?
There are stringent limitations on cancelling investments made on crowdfunding portals. Before you invest on this site, we urge you to strongly consider your investment, the information presented to you, and the risks outlined on this page and elsewhere regarding crowdfunding investments. There are only two circumstances where a BlockVestor may cancel his or her investment on Buy the Block:
At any time prior to 48 hours before the preset closing of an offering on Buy the Block, a BlockVestor may cancel his or her investment of ANY reason.
Also, while a Block Developer’s offering is live, if a material change occurs regarding to the offering or to the information provided by the Block Developer, then all previous BlockVestor commitments will be automatically cancelled unless BlockVestors affirmatively reconfirm their commitments. The SEC considers “material” to be very serious changes that would generally “change the total mix” of information given to BlockVestors. In other words, if a change occurs and it would likely cause a reasonable BlockVestor to have changed his or her decision to invest, it might be considered “material.”
What should a BlockVestor consider when determining whether investing in a Block Developer is appropriate for him or her?
- Find out as much as you can about the Block Developer’s business, including the industry in which it operates to make an informed decision. Also ask yourself whether you are comfortable getting limited information for the duration of the investment. Most importantly, understand if, how and when you will be able liquidate your investment and confirm that these limitations align with your overall investment strategy.
- Pay particularly close attention to any risk factors associated with the Block Developer’s business, such as other competitors in the space, or economic risks specific to the business. Risk factors might also include risks associated with the Block Developer itself, such as a weak balance sheet, use of leverage or a limited operating history.
- Consider how a particular investment opportunity fits in with the mix of other investments you hold. How does it align with your risk profile?
- Carefully review a Block Developer’s Form C, which should be detailed and balanced. If you don't understand any information on a Form C, don't invest. Although it contains only limited financial information, it identifies the company's executives and describes other matters that can be valuable. Review any other offering documents provided by the Block Developer.
- Understand what types of securities are being offered to BlockVestors, and how your potential ownership may be diluted in the future.
- Buy the Block is required to provide communications channels where BlockVestors (and other members of the public) can freely communicate with Block Developers. Use these channels to ask questions about a Block Developer and its underlying project. Specifically, you may consider asking about the Block Developer’s past performance in prior offerings, the background of its management, or information about the underlying property.
- Carefully review and understand the underlying conditions on how the Block Developer’s offering can close. For instance, Block Developer’sDevelopers are required to have a minimum offering amount, and if that amount isn’t met, the offering cannot close and any money committed by BlockVestors may be returned.
In protecting your own interests, prior to investing on this site, please think carefully about your risk tolerance and what you can afford to lose if the investment doesn’t turn out as expected. Read everything carefully before you sign and consider the cons before you consider the pros. Get a second opinion from a lawyer, accountant, investment advisor, or business colleague who has no connection with the company. It is vitally important that you determine that an investment in crowdfunding is “right” for you before you make the investment.