Information that Investors on this site should know:
Using Buy The Block’s crowdfunding portal, a developer in Des Moines, Iowa or Camden, New Jersey or South Central Los Angeles 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.
On Buy The Block (our site, we refer to issuers as “Block Developers”; similarly, we call investors on our site “BlockVestors”).
What is the process for offerings, purchase, and issuance of securities through Buy The Block site?
A Block Developer may raise only $1.07 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);
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);
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);
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:
*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:
*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 an 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:
$107,000 or less
More than $107,000.01 but not more than $535,000
More than $535,000
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 investment by a BlockVestor, a Block Developer may provide debt, equity, or some combination of the two (most commonly referred to a convertible debt which may convert to equity upon certain events). Each type of security has distinct features and each carries 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 forms of ownership interest in an entity. Equity holders are generally entitled to profits of the Block Developer and may have certain voting rights which allow 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 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 receive 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:
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:
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 reinvest? 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 year (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:
What are the circumstances in which a BlockVestor may cancel an investment commitment?
There are stringent limitations on canceling investments made on crowdfunding portals. Before you invest on this site, we urge you to consider your investment, the information presented to you strongly, 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 before 48 hours before the preset closing of an offering on Buy the Block, a BlockVestor may cancel his or her investment for ANY reason.
A BlockVestor may cancel any investment up to 48 hours after clicking the "Invest Now" button and receive a refund of such investment without any fees or penalties for any reason. A BlockVestor may cancel his or her investment for any reason up to 48 hours before an offering’s close and receive a full refund of such investment without any fees or penalties by sending an email to email@example.com with the subject line of “Investment Cancellation” and identifying the particular investment to be canceled. Refunds will be processed within (24) twenty-four hours.
Also, while a Block Developer’s offering is live, if a material change occurs regarding the offering or to the information provided by the Block Developer, then all previous BlockVestor commitments will be automatically canceled 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?
In protecting your own interests, before 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.
Being able to invest at the early stages of a venture exposes investors to risks that may not be as prevalent with investments in publicly listed companies. For example, investing in a crowdfunding opportunity may come with increased speculative risk in connection with whether the venture succeeds at all as well as the increased illiquidity associated with investing in a company not listed on a stock exchange.
You can explore these and other risks and learn about how you can invest in securities-based crowdfunding vis our 'Risk' page.