Promissory notes, crowd notes, and crowd SAFEs are all security types you may encounter in equity crowdfunding, and there are different risks associated with each:
- Promissory Notes: There is no assurance that a purchaser of a promissory note will realize a return on its investment or that it will not lose its entire investment. Additionally, the issuer may not be able to generate enough cash flow to meet their interest payment obligations and may at any time default.
- Crowd Notes: There is no assurance that a purchaser of a crowd note will realize a return on its investment or that it will not lose its entire investment. Additionally, purchasers will not become equity holders until a qualified equity financing event occurs, at which the issuer can choose to convert or extend the crowd note.
- Crowd SAFE: There is no assurance that a purchaser of a crowd SAFE will realize a return on its investment or that it will not lose its entire investment. Additionally, purchasers will not become equity holders until the company decides to convert the Securities into Securities or until an IPO or sale of the Company. Additionally, a crowd SAFE is not a debt instrument and investors in crowd SAFEs do not have preference in a liquidation. Further, crowd safe notes do not accrue interest.