Considerations when investing in new business

Issuer Regulation

Investing involves risk. The following are a few of the factors to consider before making an investment in a start-up or early stage business:

  • What is the track record of the people behind the business?
  • Do management and key employees have the necessary technical, management, sales and other skills necessary? If not, what are their plans to retain those who do have the necessary skills? 
  • How much of the money being raised will be used to compensate management and key employees? Are key personnel incentivized to stay involved in the business?
  • What are the plans for the business and the key milestones?
  • Is the disclosure clear, concise and plain? Technical, vague and confusing? Is it fair and balanced or overly promotional? 
  • How much money has been raised and how much is needed?
  • If you are investing in a business that is not a reporting issuer, you may receive little or no ongoing information. Further, there will typically be little or no ability to resell  the securities. If the business succeeds, how do you make a return?
  • How does this investment fit into your overall portfolio and your risk tolerance?

When considering crypto-assets….

Crypto-assets, commonly referred to as cryptocurrency, have captured significant attention. Some of the more common crypto-assets include, Bitcoin, Litecoin and Ethereum.

We urge potential investors to be cautious when considering buying crypto-assets. Buying them involves significant risk.

Parties holding themselves out as crypto-asset brokers or trading platforms (aka cryptocurrency exchanges) have not sought and obtained regulation from securities regulators and so none of the typical protections that apply to regulated entities can be assumed to exist. 

Some of the typical protections that may be absent include:

  • secure handling of client funds;
  • appropriate safekeeping and protection of client assets;
  • confidentiality safeguards for personal information;
  • insurance;
  • reliable record-keeping;
  • reliable processes for pricing and trading in crypto-assets;
  • appropriate investor pre-trade disclosures;
  • information on the nature of the legal relationship with the platform;
  • risk warnings related to trading;
  • procedures to mitigate cyber-security risks; and,
  • measures intended to prevent market manipulation, front running and other harmful practices.