What’s a material amendment?
There are 2 types of amendments, or changes, you can make to your raise: material or non-material. Material means “there is a substantial likelihood that a reasonable investor would consider [the change] important in deciding whether or not to purchase the securities.” Any changes that impact the “financial condition” of the issuer (your company) or the intended use of funds fall into this bucket. For example, increasing your valuation or hiring a new CEO would be considered material because these changes would substantially affect someone’s decision to invest. But extending your raise deadline date would be non-material – it isn’t likely to impact the financial condition of the issuer.
Ok, I think my amendment is material. Now what?
If your amendment is deemed ‘material,’ your existing investors will receive an email explaining the ‘material’ change to your raise or company and asking them to either 1) re-confirm their initial investment and/or 1) re-sign their contract.
1. Post an Update reminding investors to reconfirm.
2. Monitor your /manage page to see investors’ reconfirmation status and then remind them directly to reinvest.
Why is it important that my investors reconfirm?
If an investor needs to reconfirm their investment due to a material change, their funds (even if in escrow) will be blocked until this is resolved. If the investor doesn’t reconfirm the investment within 5 business days of viewing the material changes, the investment must be canceled per SEC regulations.
If an investor needs to re-sign their contract to agree to some change of terms during the raise, their funds (even if in escrow) will be blocked until this is resolved.
What are some common material amendments?
1. A new lead investor
2. Substantial debt is taken on during the raise
3. Changes in executive positions
4. Changes in security type (e.g. switching from a revenue share to priced round) or offering terms (e.g. changing the price per share or valuation cap)
What are some common non-material amendments?
1. Extending the raise deadline
2. Changing the corporate address
3. Small increases to the max raise amount
Non-material amendments are changes to the round that will probably won’t affect an investor’s decision to invest. These won’t require your investors to reconfirm, and they usually aren’t notified of these changes.
If you have any specific changes that you’re looking to make and you’re unsure which category they fall under, feel free to reach out to your Account Manager or to firstname.lastname@example.org.