Frequently Asked Questions

Netcapital Overview

What is Netcapital?

Netcapital is a private securities platform that makes the capital markets work for real people. We connect investors to entrepreneurs to help private companies grow. Netcapital allows companies to raise capital by selling common stock or membership units to investors for cash. Netcapital empowers companies to raise capital by offering investment opportunities to the general public, including your friends, family, customers, vendors, suppliers, angel investors etc.

Netcapital is a Funding Portal registered with the U.S. Securities and Exchange Commission (SEC) and member of the Financial Industry Regulatory Authority (FINRA), a registered national securities association, as required by SEC rules.

What is Crowdfunding, and how is that different from Netcapital?

Crowdfunding generally refers to capital raising platforms such as Kickstarter or GoFundMe where money is raised through soliciting small individual investments or contributions from a large number of people. Crowdfunding websites in the United States have been a popular way to solicit charitable donations and to raise funds for various initiatives like films, consumer products, and music recordings in exchange for rewards such as T-shirts or early access to a new product.

Netcapital allows you to buy equity in companies, as opposed to just receiving T-shirts or other rewards in exchange for a contribution of money. With the change in regulation initiated by the Jumpstart Our Business Start Ups (JOBS) Act (referred to on Netcapital as Section 4(a)(6) and also referred to in other places as Regulation Crowdfunding, Regulation CF or Reg CF) adopted by U.S. Securities and Exchange Commission (SEC) in 2016, the general public now has the opportunity to participate in the early capital raising activities of startup and early-stage companies and businesses. Companies, like those using Netcapital, can use this new law, Section 4(a)(6), to offer and sell financial securities (equity) to the general public, like you.

What is Section 4(a)(6)?

Section 4(a)(6) under the Securities Act of 1933 (1933 Act) is an exemption to the general requirement that a company must register its securities to be offered and sold with the SEC. Section 4(a)(6) is sometimes referred to as Regulation CF or Title III. This new rule implemented the requirements of the JOBS Act in 2015., Section 4(a)(6) is a mechanism that enables anyone to fund startup companies and small businesses in return for equity. Investors invest money in a business and receive ownership of a small piece of that business.

Section 4(a)(6) allows companies to raise up to $1,070,000 from investors within a 12-month period using funding portals registered with the SEC, like Netcapital.

Investor Requirements

Can anyone invest?

Yes, you can invest! Anyone can invest at least $2,200 per year in Netcapital offerings. If you want to invest more than that, there are restrictions on how much you can invest depending on your annual income and your net worth. Netcapital follows SEC rules in determining how much investors can invest in an offering.

How much can I invest through Netcapital?

For Section 4(a)(6) offerings, the SEC limits how much investors may invest in private companies in a given year. Section 4(a)(6) investors may invest the greater of $2,200, or 5% of the lesser of their annual income or net worth, if the investor's net worth or annual income is less than $107,000. A Reg CF investor may invest 10% of the lesser of their annual income or net worth if both their annual income and net worth are equal to or more than $107,000. There is a $107,000 aggregate investment limit across all issuers during any 12-month period.

Can you give me some examples of the limits on the amount of my investment based on income and net worth?

The following table created by the SEC provides a few examples:

Annual IncomeNet WorthCalculation12-month Limit
$30,000$105,000greater of $2,200 or 5% of $30,000 ($1,500)$2,200
$150,000$80,000greater of $2,200 or 5% of $80,000 ($4,000)$4,000
$150,000$107,00010% of $107,000 ($10,000)$10,700
$200,000$900,00010% of $200,000 ($20,000)$20,000
$1.2 million$2 million10% of $1.2 million ($120,000), subject to cap$107,000

Joint calculation. You can calculate your annual income or net worth by jointly including your spouse’s income or assets. It is not necessary that property be held jointly. However, if you do calculate your income or assets jointly with your spouse, each of your crowdfunding investments together cannot exceed the limit that would apply to an individual investor at that annual income or net worth level.

What is an accredited investor, and why would I want to verify my accredited status?

To be considered an accredited investor you must have a net worth of at least $1,000,000, excluding the value of your primary residence, or have an annual income of at least $200,000 each year for the last two years (or $300,000 combined income if married) and have the expectation to make the same amount this year. The term "accredited investor" is defined in Rule 501 of SEC Regulation D.

Some offerings on Netcapitall are “side by side offerings”. That means that once allocation fills up in the Section 4(a)(6) offering, there could be additional shares available for accredited investors only through Regulation D 506(c). In order to have access to all potential shares, you should verify your status as an accredited investor.

Can an investor outside the US invest?

Yes, provided the laws and regulations of your country of residence do not prohibit you from investing.

Can I invest if I am under the age of 18?

You cannot invest if you are under 18 years old; however, one of your parents could invest on your behalf in his/her name by setting up a UTMA or trust for you.

Can I invest through my Individual Retirement Account (IRA)?

Yes, although some traditional IRAs limit the investment options available to stocks, bonds, mutual funds and certificates of deposit (CDs). Please check with the financial institution that sponsors your IRA to confirm whether Netcapital investments are permitted in your IRA. You may want to shop around for a financial institution that offers a self-directed IRA that accommodates available investment options such as the companies offered through Netcapital if you want to be able to invest your retirement assets in companies raising capital through Netcapital.

Investing on Netcapital

What kind of due diligence support does Netcapital provide?

Netcapital is a member of FINRA and a registered Funding Portal with the SEC. Netcapital must screen all issuers as required by the SEC for 4(a)(6) and 506(c) filings. Netcapital does not make investment recommendations of any kind. All of the documents required by the SEC are made available to the public. We encourage all of our investors to complete independent due diligence on issuers before making an investment decision.

Does Netcapital offer investment advice?

Netcapital does not make investment recommendations and nothing we say or post on our website, social media accounts, or elsewhere should be construed as such. We encourage you to read thoroughly our section on the risks involved in purchasing securities in private companies and to do your own due diligence on each company before making an investment decision.

During the offering, can I contact the entrepreneur?

Yes, every offering on Netcapital has a Q&A forum where you can post questions to the entrepreneur and he or she will respond to your questions through the forum. All communication must occur through Netcapital’s public forum so all investors have access to the same information.

Is there a fee to invest in an offering through Netcapital?

Netcapital currently does not charge investors any fee to invest in offerings. If you invest $100, we debit your account for $100 and you own $100 worth of shares at the time of the closing. The company in which you invest pays Netcapital a fee of 4.9% of the amount raised upon the successful raising of capital through Netcapital.

What is the minimum investment I can make?

The minimum investment for a Netcapital offering is typically $99.

Does Netcapital issue stock certificates?

All shares purchased through Netcapital are recorded electronically and therefore we do not send paper stock certificates when the deal closes. You will receive an electronic receipt from Netcapital and the number of shares you own will be accessible via the investor dashboard in your Netcapital account.This "book-entry" method of recording your ownership is how most stocks are issued today and it means that you don’t get a physical stock certificate; instead, shares are held via electronic record by the issuing company’s transfer agent. The benefits of electronic book-entry is to minimize the costs and problems of lost or missing certificates, which can be difficult for investors and companies alike to manage.

What personal information do I need to provide in order to make an investment?

For you legally to hold securities through Netcapital we need your name, address, phone number, social security number, and bank information. We take extra measures to ensure your data is safe and secure.

What options do I have to pay for my investment?

Netcapital does a direct debit (an ACH transfer) from your checking or savings account. For international accounts we accept payment by wire transfer. If you are paying via ACH transfer, there are no additional fees to investing. If you are paying via a wire transfer, there may be additional fees charged by your bank related to the transfer of funds. In the event that you make a wire transfer, please be sure to talk to your banking institution about any fees involved, so that you can pay any additional transfer fees needed.

For example, if you are seeking to make an investment of $500 in a company by means of a wire transfer and your bank charges a wire transfer fee of $25, you may wish to transfer $525 (your $500 investment target plus the $25 wire transfer fee paid to your bank). Otherwise, you may end up investing only $475 because the $25 wire transfer fee will be deducted from your requested investment amount.

What is a transfer agent?

Transfer agents keep records of who owns a company's securities and how they are held. They also keep records of how many shares each investor owns. Netcapital partners with Worldwide Stock Transfer, LLC, a transfer agent registered with the SEC, to keep all records of the shares and to function as custodian for securities purchased through Netcapital.

What is an escrow account?

An escrow account is a legal concept in which funds or assets are held by a third party on behalf of two other parties that are in the process of completing a transaction. The funds or assets are held by the escrow agent until it receives the appropriate instructions or until predetermined contractual obligations have been fulfilled at which point it pays the funds to the other party. All investments purchased through Netcapital are held in an escrow account until the term of the offering is complete and the issuer’s investment goal has been reached. If the investment goal is not reached, your funds will be returned to your account in full. The disbursements may take up to a few weeks to process.

Can I change or withdraw an investment commitment?

Yes. You may cancel your investment at any time up until 48 hours before the deadline of the offering. Once within 48 hours of the closing of an offering, you cannot change, cancel or withdraw your investment commitment.

If, prior to closing the funding, the company you’re investing in makes a material change to the offering terms or other information that was disclosed to you, you will be notified of this change and given five business days to confirm that you still want to make your investment. If you do not confirm your investment within five business days of that notification, your investment will be cancelled.

How long will it take to get a refund if the target offering is not met or I withdraw my commitment?

It typically takes a few business days to receive your refund.

How quickly will my funds be withdrawn from my account after making the investment?

Funds will be debited from your bank account within a few days after you invest. You should make sure there are enough funds in your account during that period.

What are the tax implications of a Section 4(a)(6) investment?

Netcapital cannot give tax, accounting or legal advice, and we encourage you to talk with your accountant or tax advisor before making an investment.

After you invest

Will I receive updates on the progress of the company?

Companies that raise money through Section 4(a)(6) are required by the SEC to file an annual report on their financial condition, unless certain conditions are met. Companies may, at their discretion, send investor updates through the Netcapital system at any time.

After the offering, can I contact the entrepreneur?

Netcapital will manage investor-relations communication between investors and companies after closing. It may be difficult to get the attention of founders and CEOs as their focus will be on running their businesses.

How do I view my investments?

Your Netcapital shares can be viewed in your Netcapital dashboard. Simply log in to your Netcapital account through our website.

Can I view Netcapital investments in my etrade account (or other tools I use to track my investments)?

Your Netcapital shares can be viewed in your Netcapital dashboard.

How can I help the companies I invest in succeed?

As part of our investment process we will ask you to send us note if you believe you can help the company in any way. If so, Netcapital or the Issuer you are investing in may follow up to handle your feedback on a case by case basis.

Can I sell my shares?

Investments made through Netcapital are quite illiquid, meaning you can't sell them or convert them to cash easily because the shares do not trade in the public markets. You should not expect to be able to resell your shares.

Are there restrictions on selling or transferring purchased shares?

Investments made through Netcapital are illiquid, meaning you can't easily sell them or convert them to cash because the shares do not trade in the public markets and there are restrictions on your ability to resell the shares to others. You may not sell or otherwise transfer your shares purchased through Netcapital for 90 days after the date of purchase from the company. Then, one year after the date of purchase from the company, the shares may not be transferred except when transferred:

  1. To the issuer of the securities
  2. To an accredited investor
  3. As part of an offering registered with the SEC
  4. To your family member r or the equivalent, to a trust controlled by you, to a trust created for the benefit of a member of your family or the equivalent or in connection with your death or divorce or similar circumstance

A family member means your child, stepchild, grandchild, parent, stepparent, grandparent, spouse or spousal equivalent, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships.

There may be no market for the shares even after the initial 12 month restricted period. It is important that you only invest capital with the expectation of holding your investment for an indefinite period of time, and with the real risk of a total loss of your investment in mind. Only invest an amount you can afford to lose without changing your lifestyle.

How do I make money on my investment?

The value of your shares in the company may increase or decrease over time depending on how the company performs. When investing in early stage companies, the most common way to make money is when the company you are investing in either conducts an initial public offering (IPO) or gets acquired. In the meantime, you should not have any expectation for being able to resell your shares for a profit. As mentioned on our website, the investments offered on our website are extraordinarily risky, and you should not have any expectation of returns.

Will my ownership percentage be diluted over time?

There is the possibility that your ownership percentage may be diluted, and your voting power may be diminished overtime as the company you invest in continues to grow and raises additional capital by selling shares to other investors.

Growing startups often conduct multiple stages of capital raises, all the way to a possible IPO. For each stage, the company issues additional stock to the new investors.

When a startup is struggling, it may pursue the option of going bankrupt or raising more money in a "down round", which means the value of the company decreased since the last capital raising stage. This is an adverse outcome for both the founders and past investors as dilution occurs much more dramatically in this instance. However, this result may be preferable to the startup going bankrupt and its investors losing everything.

Does Netcapital send out statements when the stock goes up or down or do I have to look it up somewhere to keep track?

Because shares in companies on our platform are not traded, it can be difficult to monitor a change in price unless there is another investment round or an exit (meaning the company is sold or goes public). In both of those circumstances, the Issuer is required to disclose this information in an annual report. Netcapital does not provide statements in the interim.

Is a Netcapital investment right for me?

You should carefully consider whether investing in securities offered and sold under Section 4(a)(6) is appropriate for you. Use the information and tools on the Netcapital website to research your investment target carefully. See the FAQ below “What are some additional resources to learn more”. You will want to pay particular attention to the terms of the offering, thoroughly review the risks of Section 4(a)(6) investments and the risks specifically associated with the target company before deciding whether the investment fits your portfolio and risk profile. It is important that you invest only capital that you can afford to tie up for an indefinite period of time, and capital that you can afford to lose completely.

Netcapital is not responsible for any losses you incur as a result of investments made through Netcapital. You should also be aware that after an offering is complete, Netcapital may have an ongoing relationship with the company, including working with the company to raise more capital though the Netcapital platform .

What are some additional resources to learn more?

To learn more about investing, please see https://www.sba.gov/starting-business/finance-your-business/venture-capital/venture-capital

To learn more about Section 4(a)(6) offerings, please see the recently adopted SEC rules.

The SEC has issued an Investor Bulletin that is quite helpful to gaining an initial understanding:

FINRA has also issued a Press Release and an Investor Alert about crowdfunding and about updated investment limits for securities-based crowdfunding:

To view SEC filings made by Netcapital and companies offering securities through this site, please see the SEC EDGAR database.