Investing in early-phase small and medium-sized companies (startups) involves risks. Early-phase companies are immature and their business model is unvalidated. Moreover, there is no secondary marketplace to trade their shares. Never invest more than you can do without for years or even lose. Based on past experiences, only every tenth or twentieth company becomes truly successful. Investment in those promising companies becomes available for everyday investors by crowdfunding. Do not miss the next success story but be cautious and do not risk more money than you can dispose.
When considering an equity investment, one must take into account the risks as well as the expected return on the investment. Although each Project Owner and Investor has expectations about the increase in the value of shares of the given company, the future return on investment is not foreseeable.
The companies raising capital on the platform operated by Tokeportal.com are early-phase small and medium-sized companies. Investment in such companies involves significant risks, since the business model of these companies is immature and not validated. Therefore forecasts on their future profitability are rather speculative. If the business plan fails, the investor may lose some or all of the amount invested, but if the business plan is fulfilled and the company appreciates, the investor typically only receives the return after many years – due to the limited liquidity of the stock – in the event of a buy-out or perhaps an IPO.
This Risk Warning does not aim at disclosing and explaining all the risks of investing at https://app.tokeportal.com/, but rather aims at warning investors to investment risks. Tokeportal.com recommends prospective Investors to read the detailed descriptions of Project Owners carefully and – following the registration at the platform – to raise questions to the Project Owners on the Campaign’s forum. If necessary, consult an investment adviser. Further questions may be raised by sending a message to email@example.com.
Investors shall make their own investment decisions (considering all the available information). Tokeportal.com expressly excludes any liability for the Investors’ investment decisions, for any direct, indirect or consequential loss or damage.
Major investment risks include at least the following cases:
Loss of capital
Most early-phase companies fail or cannot realize their pre-defined strategic and financial goals. Therefore, investment in such companies involves significant risks, including losing part of or even the entire amount invested. In case a company raising capital at Tokeportal.com fails or becomes insolvent, neither the company, nor Tokeportal.com is liable to pay back the invested amount nor are these investments secured by any state funded or other guarantee fund.
The Project Owner companies are incorporated as private limited companies and although their shares are usually tradable, there is no organised secondary market for doing so, which makes trading a complicated and long procedure. Moreover, the information on share prices are not publicly disclosed. Liquidity means that there is an opportunity to buy and sell shares constantly.
Absence of Dividends
Companies pay dividends to their shareholders from their after-tax profit. Early-phase companies do not often pay dividends, they shall rather use their profit to fuel the growth of the company to increase shareholder’s value.
The stake that an Investor acquires in a company raising capital at the platform decreases if the company issues further shares and the investor does not acquire new shares to maintain his or her stake. (In case the Articles of Association does not resolute otherwise, the Investors acquiring a stake during the crowdfunding round are granted pre-emptive rights to purchase from the shares.)
Risks involved in the Term Sheet (inc. KIIS)
Each Campaign’s Documentation includes the terms of investment (the Term Sheet) and/or KIIS, which lays down the essential terms of the Articles of Association following a successful Campaign, including the shareholders’ rights. For more details regarding the Term Sheet, please visit our Glossary.
Late exit, i.e. a delay in the realization of the increase in value
In the start-up world, the companies that show the highest value growth are typically bought by a professional investor or listed on the stock exchange, with a significant increase in share price. However, there is no guarantee that the acquisition or listing can be successful within the timeframe on which the investor has based the investment decision. The professional consensus is that only 1 or 2 out of 100 start-ups can make it to an exit with a profit of ten to twenty to thirty times the purchase price in 10 years.
The financial information of early-phase companies has usually not been audited prior to the capital increase during a Campaign, therefore no auditor or other third party may be held liable for the disclosed information. After the investment, the possibility to request extraordinary information as a shareholder is also limited, because the management and boards of start-ups have few resources to provide information. Following the publication of the information promises, business indicators (KPI reports) and financial statements in the Campaign Document, all investors have the opportunity to ask questions during the information period. TokePortal is fundamentally in the best interests of Investors and will make every effort to ensure that the Project Owner discloses timely and appropriate information on the expenditure of capital and presentation of performance and sanctions the Project Owner for failure to do so, but does not have the authority to enforce them. Investors should be able to exercise their shareholder rights.
Crowdfunding (although it has always existed, as people have always sought direct, external funding for their business ideas) as an online, platform-based form of investment is relatively new and subject to established international best practices and legislation. It does not have a separate regulation in Hungary, but the EU Parliament has finalised the legislation through the ECSP Regulation. Given the novelty of this form of investment, users may be affected if the Hungarian authorities interpret the legal framework differently or in different ways. TokePortal has developed its operating model to the best of its knowledge, in consultation with capital market institutions, authorities and experts, in accordance with the relevant Hungarian and EU legislation, resulting in a service that complies with the Prospectus Regulation (PR) and the provisions of the Civil Code and the Tpt.
The methods of investment risk management
Tokeportal draws the attention of investors to invest in companies only if they have adequately assessed and carefully considered the possible investment risks and these risks suit their risk appetite as well as their capacity of taking risks. This is checked by a compulsory entry knowledge test and a test of loss tolerance. TokePortal will not prevent anyone from investing, but will make risk calls according to the prospective Investor’s ability to bear losses. In the view of mainstream investment science, diversification, i.e. the allocation between several assets, and a small, moderate proportion of total savings, is the best way to protect the Investor from excessive risk-taking.
The entry knowledge test asks about the prospective investors’ past work experience and investment knowledge. In particular, we ask about the knowledge of the risks associated with the acquisition of transferable securities and community finance assets, investing in startups. We repeat this test with our inexperienced investors every two years.
In the loss tolerance test, we use the net worth method as follows:
Net assets = (net annual income) + (total liquid assets) – (annual financial liabilities)
Investors can use 10% of the value calculated on this basis to test the extent to which they would be able to do without this amount if it were to be completely lost.
In all cases, our retail investors will receive a risk warning before they accept an individual Crowdfunding offer to invest an amount exceeding €1 000 (HUF 400 000) or the higher of 5% of their net assets calculated on the basis of a simulation test of their ability to bear losses. For our retail investors we recommend investing smaller amounts, which one can bear to lose and to diversify investments, i.e. allocating the investible amount to several companies. We also recommend participation in groups, at events and educational programmes discussing crowdfunding.
In accordance with the regulation of countries with a developed capital market, we advise everyday investors to invest at most EUR 12 500 (5 mln HUF) in one campaign and at most a value equivalent to the 10% of their net worth.
Further general information
Considering that the market participants in Hungary have not had the chance to accumulate in-depth knowledge and experience on crowd investing so far, and in accordance with our Terms and Conditions as well as its annexes, we find it crucial to help Investors and Project Owners understand the following:
Tokeportal.com does not invest in the campaigns launching on the platform, does not provide investment advice and does not manage the assets of clients. TokePortal does not provide legal, financial or tax advice of any kind. We advise Users to consult a professional adviser in case they have any questions with respect to legal, financial or tax matters relevant to launching or investing in a Campaign.
In accordance with paragraphs 6.360-6.365 of the Civil Code of Hungary as well as Section (7) of 47 § of the Hungarian Act on the Capital Market, investments are accumulated on the custodian (escrow) account of the Project Owner until the campaign closes. After a Campaign reaches its (minimum) Funding Target, the Project Owner receives the amount in the form of equity following the issuing of shares.
During the preparation of the Campaign and the preparation process, Tokeportal.com considers all information submitted by the Project Owner to be appropriate, clear and not misleading. The validity and the coherence of relevant historical data is examined during a basic due diligence process conducted by the Lead Investor or Tokeportal.com. However, they do not take any responsibility for the correctness of these data. Tokeportal.com examines the forecasts for future growth and their context, too, and checks whether the Project Owner warns prospective investors about the speculative nature of these forecasts and the potential risk factors. Tokeportal.com and the Lead Investor apply a scoring method, which is well-known in the venture capital industry, and launches only such Campaigns, which are scored as “suitable for investment”. However, they might be wrong or they might overlook some relevant or falsified information. Plans might be flawless but still differ from reality. Tokeportal.com obliges Project Owners to communicate any changes in an appropriate, prudent and ethical way, for 3 years following the end of the Campaign.
Bearing in mind that the Project Owners are usually startup companies with limited resources, the availability of the Founders to answer the questions of Investors shall be limited, just in order to protect investors. We advise Investors to disclose on the Forum any relevant information they notice, by opening the appropriate topic. (Tokeportal.com moderates the Forum, and it can be used only by identified users.)
Prior to launching a Campaign, Tokeportal.com reviews the Campaign Documentation. All other disclosed information – e.g. on the Forum – have not been validated. The validation excludes the offered equity and the pre-money valuation of the company; Project Owners negotiate these with their investors or with the Lead investor. Tokeportal.com validates the Campaign at a fixed point in time, whereas the company continues its operation until the Campaign launches. The financial situation of the Project Owner might be scarce, in which case the sustainability of the company depends on the success of the Campaign. The Project Owner has to disclose these information voluntarily or at an express request.
Tokeportal.com is not an investment service provider and does not provide investment advice of any kind and on any channels; moreover, the facilitation of launching Campaigns does not reflect any opinion about the given Campaign. It is the mission and it is in the interest of Tokeportal.com to contribute to the creation of campaigns, which provide more and more, as well as better and better investment opportunities; to develop the investment culture; to foster the development of the local economy through local investors; and to attract the most possible small investments of local investors. Therefore not a single campaign can expect to get exemptions during the scoring process as well as the strict campaign review process in accordance with the international best practices of this investment method, even if Tokeportal.com excludes any liability for the disclosed information. It might happen that an active campaign must be terminated, if such information come to light, which harms the interest of investors. (The investments are accumulated on a custodian account, therefore, in such a case, investments are refunded.)
All information that the Project Owner discloses on the platform shall be regarded as if the Project Owner transmitted it directly to the investor, without using Tokeportal.com as intermediary. The Campaigns do not constitute public offers and are accessible by those investors only, who have received their investor status as a result of an identification process in accordance with the related legislative provisions as well as proving their knowledge on investing. Each Investor invests on its own accord, after ensuring that no legislation or tax matter forms an obstacle for his investment.
The Project Owner shall prepare all the disclosed information with due care and diligence in order to provide a fair and accurate representation of the current situation as well as the future of the Project Owner company, bearing in mind that all future forecasts are speculative even if they disclose „conservative” or „pessimistic” estimates. Investment-based capital increase requires significant resources to produce the necessary documentation and conduct the necessary processes; these shall be given priority against the ordinary course of business.
Foreign investors will be actively served by TokePortal only after it has been granted a license to operate, but until then, foreign investors without a Hungarian securities account should note that Hungarian securities can be transferred to a foreign securities account if the foreign account manager has a custodian relationship in Hungary, whose securities account number is provided by the investor within 5 working days of the transfer of the amount to be invested, at the latest, and supported by a document. Failing this, the Project Owner will not be able to accept your investment and will return the advance received to the withholding account.
For further information please drop us a line at firstname.lastname@example.org or use the chat service within the platform. Follow us on social media and join our events.