You Could Lose Your Capital: Investing in private companies comes with many risks. The company could fail and you could lose your entire investment. You should not make an investment in a private company unless you are financially capable of losing your entire investment.
You Will Have Limited Liquidity: Investments in private companies are largely illiquid. It is highly likely that you will have no opportunity to sell your investment if you wish to do so. This is because there is no market for the securities in private companies. In addition, the company itself may place restrictions on the sale of the security when it was purchased. You should read the offering terms to determine what restrictions are placed on the securities before you make any investment.
The Capital Protection Option Will Reduce the Growth Potential of Your Investment: While choosing a capital protection option will reduce the risk of losing invested capital, it also will decrease the upside an investment could produce. The reason for this is that the money used to protect your capital will be invested in government securities instead of the securities of the company that is offering its equity securities. Accordingly, the amount you have available to invest in the growth opportunity offered by the issuer company will be reduced. The amount of your total investment that will be used to purchase government securities will depend on the interest rates of government securities being sold at the time of investment. The lower the interest rate, the more money will be needed to invest in government securities to assure that they will mature at an amount equal to the percentage of capital protection you have elected.
You Could Have Taxable Income Without Cash Distributions: Unless your investment is made through a tax-exempt or tax-advantaged vehicle such as a 401(k) plan, you will recognize taxable income each year as the government bonds purchased to provide capital protection generate accrued income. You will not receive any cash distributions to pay taxes from your investment, so you will need to use other resources available to you to satisfy your tax obligations.
The Conversion of Your Protected Capital Will Eliminate Protection: If you choose to convert part or all of your protected capital, you will no longer benefit from the guarantee that you will receive that portion of your capital back, or any future interest that would have been associated with it. A conversion opportunity will only be present to the extent that the company you have invested in has demonstrated a continued ability to grow and present an attractive investment opportunity to investors.
Risks of Losing Protected Capital: Your protected capital will be used to purchase United States Government securities, which have an extremely low risk of loss. These securities will be placed in a trust that is not owned by the company you are investing in and therefore is not available to satisfy the debts or liabilities of the company. However we cannot assure you that, in the event of the company’s bankruptcy or insolvency, creditors of the company will not attempt to gain access to the protected capital, nor can we assure you that they will not be successful.
Risk of Losing Purchasing Power: When choosing a capital protection option, the protected capital you receive back when the government securities mature may have lost purchasing power due to inflation. This means that your capital, when returned, may not be able to buy the same amount of goods and services as at the time you invested. Higher inflation during that time period will result in greater loss of purchasing power.