The other thing that all startups should know
is that anti- fraud provisions of securities
laws require that offerors do not make or
omit a material fact about a company. So it’s
very important to disclose the issues that
you foresee in your company. Let’s say that
you’re manufacturing a product and you only
have one manufacturer and that manufacturer
has had legal problems or maybe they haven’t
been producing the products uniformly (they
haven’t achieved that), then that might
be a material fact that you want to disclose
to investors. Otherwise they could come back
and say that they are rescinding their investment.
They could bring you into federal court for
a securities fraud issue and it looks really
bad for your company, and it’s hard to recover
from something like that.
