Issuer Guidelines: Use of Future Projections
Please be aware that the use of forward looking projections exposes you to risk if those projections are not met. It is important that you understand all of the risks involved prior to including forward looking information or projections, and that you have discussed with your attorney (if any) the best way of presenting those projections to reduce your risk.
What are Projections?
Projections mean any kind of forward-looking information (“FLI”), which includes but is not limited to projections of future results for companies with little to no operating history or any information that extrapolate and projects forward from actual results. If you would like to include FLI, please use the following as a guide.
Risks of using projections include but are not limited to:
- Litigation: Projections are what is most likely to lead to litigation in a securities offering.
- No Safe Harbor: There is no safe harbor for forward-looking information in Reg CF offerings. Instead, issuers there have to rely on the “bespeaks caution doctrine” which says that any FLI has to be identified and cautionary language provided.
- Highest Risk: The highest-risk type of projections are those of revenue without projections of expenses, and projections of profits without showing how those profits were calculated. **Not allowed on the StartEngine platform.
Projections deemed to be lower risk include but are not limited to:
- Detailed projections: The more a company goes through each item of its P&L and explains how it thinks it’s going to change, and the basis for that thinking, the better.
- Results Based: Where projections are based on actual results and projected forward based on trends that are already evident (eg, taking account of scalability of costs).
StartEngine will permit 3 year projections which include, at a minimum, the following:
- COGS (Cost of Goods Sold)
- direct costs attributable to the production of the goods sold in a company.
- Gross margin
- net sales revenue minus its cost of goods sold (COGS)
- Fixed costs
- expenses that do not change as a function of the activity of a business, within the relevant period.
- Steady state profit goal
**These criteria help investors see there is a model that can work when the company matures with sufficient revenue.
Support for Projections within the Onboarding
Issuers must provide details on how the projections and assumptions are calculated, and the assumptions must have a reasonable and comparable basis to other similar cases. The key rule of thumb is that a reasonable person should be able to assert the probability of these projections.
- For example, the statement, “we are assuming growth of 10%” does not provide enough information compared to “we are assuming growth of 10% because that is consistent with the growth rates we/competitors have experienced over the last X years.”
In addition to the appropriate disclaimers, supplemental support or back-up to the listed projected must be emailed directly to your account manager.
- Business Plan
- formal written document that contains business goals, the methods on how these goals can be attained, and the time frame within which these goals need to be achieved.
- Detailed Financial Model
- Excel or similar model which provides details the assumptions and how the projections were calculated.
Guidelines for Projections Listed on the Campaign Story Page
Campaign page must include the following disclaimers and warnings:
- Any FLI information should be clearly identified as such within the onboarding and story page.
- Cross-reference to the “risk factors” section of the Form C
- A clear FLI legend included in the campaign:
- THE OFFERING MATERIALS MAY CONTAIN FORWARD-LOOKING STATEMENTS AND INFORMATION RELATING TO, AMONG OTHER THINGS, THE COMPANY, ITS BUSINESS PLAN AND STRATEGY, AND ITS INDUSTRY. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON THE BELIEFS OF, ASSUMPTIONS MADE BY, AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY’S MANAGEMENT. WHEN USED IN THE OFFERING MATERIALS, THE WORDS “ESTIMATE,” “PROJECT,” “BELIEVE,” “ANTICIPATE,” “INTEND,” “EXPECT” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS, WHICH CONSTITUTE FORWARD LOOKING STATEMENTS. THESE STATEMENTS REFLECT MANAGEMENT’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE THE COMPANY’S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN THE FORWARD-LOOKING STATEMENTS. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE ON WHICH THEY ARE MADE. THE COMPANY DOES NOT UNDERTAKE ANY OBLIGATION TO REVISE OR UPDATE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER SUCH DATE OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.