Investments in unlisted securities have a higher level of risk than exchange listed securities due to a number of factors, including but not limited to, the age of the company, its financial history, the industry in which it operates, the experience of management, limited or nonexistent liquidity, restrictions on resale of the investment, and many other factors. Before deciding to invest you should consider the following guidelines:
Private placements for unlisted securities can carry significant risk, and you may lose all of your investment. You should not invest more money than you can afford to lose.Information provided by the issuer should be fact-based. Be wary of predictions or guarantees made by the issuer. Private and/or unlisted securities are not like publicly listed securities. There are often legal or contractual restrictions on your ability to transfer your holdings, you should understand and feel comfortable abiding by those restrictions before you invest.
Even if sale of your holdings is permitted there may be no buyers. You should be comfortable with the possibility you will need to hold these securities for an indefinite period of time.
Companies that issue unlisted securities may provide little or no transparency into their ongoing operations and financial condition.
You should know your rights. The terms and conditions for participation may differ significantly from offering to offering. Take the time to read and understand the terms of the investment you are making.
Certain types of offerings require that the issuing company provide an opportunity for potential investors to ask questions and receive answers. Consider the issuer’s answers to investor questions carefully before you decide to invest.
Some investments may make periodic distributions, some may not make any. Be aware of the tax implications of these distributions and the types and timing of documentation you will need to accurately file your taxes, such as IRS Form K-1 for limited partnerships.
Be thorough in your due diligence and make an informed decision. You should not assume that any third party has approved or verified the information provided, or claims made by any issuer or performed any suitability review of any investment in securities offered by any security issuers.
You should evaluate and consider the operating background of the company and its management, financial condition, the industry it operates in, any competition that might exist, the reasonableness of the issuer’s claims and representations of its advantages, and any past fundraising efforts before investing.
You should understand how the issuer operates and generates or intends to generate revenue, as well as how they intend to use your investment, if you are reviewing a new private placement.