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 the Buy The Block site?
A Block Developer are permitted to raise an aggregate amount of $5 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 investment.
Purchase (how a BlockVestor purchases or invest).
1). If a Block Offering in which you invested meets its minimum fundraising amount, you will be able to monitor its progress through your BlockVestor dashboard.
2). If a Block Offering in which you invested does not meet its minimum fundraising amount, 100% of your money will be returned to you with no fees or hidden charges.
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 but not more than $1,070,000
More than $1,070,000 but not more than $5,000,000
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 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 referred to as 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 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 entitled to profits of the Block Developer and may have certain voting rights that 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 benefit, 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. 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 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 merge the best features of equity offerings and debt offerings. 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 offer, 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?
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, if he does not exceed his cap of $15,000 per year (i.e., property). He could 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?
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. Described below are the circumstances where a BlockVestor may cancel his or her investment on Buy the Block:
(1) A BlockVestor can 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 protected] with the subject line of “Investment Cancellation” and identifying the particular investment to be canceled. Refunds will be processed within (24) twenty-four hours. (2) Buy The Block intermediary will notify investors when the target offering amount has been met. (3) If the project reaches the target offering amount prior to the deadline identified in its offering materials, it may close the offering early if it provides notice about the new offering deadline at least five business days prior to such new offering deadline (absent a material change that would require an extension of the offering and reconfirmation of the investment commitment). (4) If an investor does not cancel an investment commitment within 48 hours** from the time of the initial investment commitment, the funds will be released to the issuer upon closing of the offering, and the investor will receive securities in exchange for his or her investment.
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 probable 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.
Relief for Exchange Act Filings
On March 25, 2020, the SEC extended conditional exemptions from reporting and proxy delivery requirements for public companies, funds, and investment advisers affected by COVID-19.
In an order (Release No. 34-88465) (the “Order”), public companies were provided with a 45-day extension to file certain Exchange Act disclosure reports and other filings that would otherwise have been due between March 1 and July 1, 2020 (the “Relief Period”), if certain conditions are met. This relief affects the following filings:
Companies should be aware that the Order does not apply to Schedule 13D filings and beneficial ownership filings under Section 16 of the Exchange Act, including Forms 3, 4, and 5.
In order to take advantage of the 45-day extension:
Effect on Due Dates
If a company relies on the 45-day extension for a Form 10-K or Form 10-Q, the report will be considered to have a due date 45 days after the original filing deadline. Additionally, registrants will be able to rely on Rule 12b-25 to obtain further extensions for filing deadlines for reports beyond the extended due date.
Effect on Form S-3 and Form S-8 Eligibility
For the purpose of determining eligibility to use registration statements on Form S-3 and Form S-8, a registrant that relies on the 45-day extension described above will be considered current and timely in its Exchange Act filing requirements if it was current and timely as of March 1, 2020, and files any report due during the Relief Period within 45 days of the filing deadline of such report.
Relief for Signatures for Electronic Filings
On March 24, 2020, the staff of the SEC’s Division of Corporation Finance, Division of Investment Management, and Division of Trading and Markets published an announcement concerning the manual signature requirements under Regulation S-T for electronic filings made with the SEC, in light of health, transportation and other logistical issues raised by COVID-19.
Rule 302(b) of Regulation S-T requires each signatory to a document filed electronically with the SEC to manually sign a signature page, to retain the paper originals of the signatures for a period of five years, and to furnish copies to the SEC upon request.
Because the COVID-19 pandemic has created difficulties in complying with Rule 302(b), the SEC staff stated that it would not recommend that the SEC take enforcement action with respect to the requirements of Rule 302(b) if:
Additionally, a signatory may provide to the filer an electronic record (such as a photograph or pdf) of the signed document.
Relief for Shareholder Meetings
The staff of the SEC Division of Corporation Finance and Division of Investment Management issued guidance for conducting annual shareholders meetings in light of COVID-19 concerns. The staff has provided the following guidance to assist issuers, shareholders, and other market participants affected by COVID-19 with meeting their obligations to deliver proxy materials to shareholders.
Changing the Date, Time, or Location of an Annual Meeting
If an issuer has already mailed and filed its definitive proxy materials, the issuer can change the date, time, or location of the annual meeting so long as the decision is made sufficiently in advance of the meeting to alert the market in a timely manner. Once the decision to change the date, time or location of the meeting is made, the issuer must promptly notify shareholders of the change of its annual meeting but is not required to mail additional soliciting materials or to amend its proxy materials if it:
If an issuer has not yet mailed and filed their definitive proxy materials, the SEC encourages issuers to consider whether to include disclosures regarding the possibility that the date, time, or location of the annual meeting will change due to COVID-19.
Virtual Shareholder Meetings
An issuer that plans to conduct a “virtual” or “hybrid” meeting, as permitted by state law and its governing documents, is expected to notify its shareholders, intermediaries in the proxy process, and other market participants of such plans in a timely manner and to disclose clear directions as to the logistical details of the virtual or hybrid meeting, including how shareholders can remotely access, participate in, and vote at the meeting.
If an issuer has not yet filed and delivered its definitive proxy materials, these disclosures should be included in the definitive proxy statement and other soliciting materials.
If an issuer has already filed and mailed its definitive proxy materials, the issuer does not need to mail additional soliciting materials (including new proxy cards) solely for the purpose of switching to a virtual or hybrid meeting so long as they follow the steps described above for announcing a change in the meeting date, time, or location.
Presentation of Shareholder Proposals
While Exchange Act Rule 14a-8(h) requires shareholder proponents, or their representatives, to appear and present their proposals at the annual meeting, the SEC staff encourages issuers (to the extent feasible under state law) to provide shareholder proponents or their representatives with the ability to present their proposals through alternative means, such as by phone. In addition, if a shareholder proponent or representative is not able to attend the annual meeting and present the proposal due to the inability to travel or other hardships related to COVID-19, the staff would consider this to be “good cause” under Rule 14a-8(h)(3), protecting shareholders from having future proposals excluded for the following two calendar years.
Relief from Delivery Requirements for Proxy Materials
Acknowledging that mail delivery may be suspended in certain areas due to COVID‑19, under the same order referenced above (Release No. 34-88465), the SEC granted some relief from the rules covering delivery of proxy statements, annual reports, information statements, and other soliciting materials, if the following conditions are met:
Insider Trading and Selective Disclosure Considerations
The SEC also advised companies and other related persons to pay special attention to their market activities during this time. Companies should publicly disclose applicable information if COVID-19 has already affected a company in a way that would be material to investors or when a company becomes aware of a risk related to COVID-19 that would be material to investors. When companies disclose material information related to the impacts of COVID-19, they must take the necessary steps to comply with Regulation FD and avoid selective disclosures by disseminating such information broadly to the public. Companies should consider whether they need to revisit, refresh, or update previous disclosures (including such matters as earnings guidance or outlook) to the extent that information becomes materially inaccurate.
The SEC Division of Corporation Finance issued Disclosure Guidance Topic No. 9, providing the SEC’s current views regarding disclosure and other securities law obligations that companies should consider with respect to COVID-19 and related business and market disruptions. The SEC provides a list of questions company management should be considering in light of continuous disclosure obligations. The SEC encourages tailored disclosure that provides material information about the impact of COVID-19 to investors and market participants and that allows investors to evaluate the current and expected impact of COVID-19 through the eyes of management. Companies are encouraged to proactively revise and update disclosures as facts and circumstances change.