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Before sending money, establish exactly what you are buying, who is legally selling it, what rights the security carries, how the company’s claims are evidenced, and how you could lose or eventually recover your investment. A private AI-company offer is a securities transaction, not simply a bet on a popular technology. Without the issuer’s legal name, security documents, share class, offering exemption, seller, price, and your jurisdiction, nobody can determine whether a particular deal is suitable or fairly priced.
This guide is educational and US-focused. Securities, tax and eligibility rules differ by country and can change. Have a securities lawyer, tax professional or appropriately registered investment professional review the actual documents when the amount is material to you.
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1. Identify the security and the transaction
Start by reducing the pitch to a precise legal description. Private companies can issue common or preferred stock, membership interests, options, restricted stock, convertible notes, other convertible instruments or debt. A secondary transaction may transfer an existing holder’s securities; a primary transaction may create new securities for the buyer. Those are different transactions with different dilution, consent and liability questions.
Documents and facts to request first
- Issuer: the company’s complete legal name, state or country of organization, principal address and the entity whose financial results support the pitch.
- Seller: the existing shareholder, company, fund or special-purpose vehicle receiving your money. Confirm whether the seller owns the securities and has authority to transfer them.
- Instrument: the exact class and series, certificate or book-entry description, number of shares or units, and any option, warrant, note or conversion feature.
- Price and closing: price per share or unit, total consideration, payment instructions, escrow arrangements, closing date and conditions that could cancel or delay the transaction.
- Primary or secondary: whether your money goes to the company for new issuance or to a selling holder. A resale does not automatically provide the company with operating capital.
- Vehicle structure: if you invest through a fund or special-purpose vehicle, identify the entity you own, its management and performance fees, expenses, voting and information rights, transfer rules, and how distributions are made.
Do not accept a presentation slide as a substitute for governing documents. The purchase agreement, charter or operating agreement, investor-rights agreement, voting agreement, transfer provisions and any side letter determine your rights. A lawyer can reconcile conflicts between those documents and the marketing material.
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2. Verify the offer, exemption and people involved
Ask which securities-law exemption the issuer is using and obtain the related notice filing, if one is required. In the United States, many private offerings rely on Regulation D. Rule 506(b) generally prohibits general solicitation. Rule 506(c) permits general solicitation only when every purchaser is accredited and the issuer takes reasonable steps to verify that status. An issuer’s compliance does not make the investment safe or suitable; it only describes the legal route used for the offering.
What a Form D does—and does not—mean
A Form D is a notice filing, not an approval, endorsement or finding that the company is legitimate. For a US Rule 506 offering, it is generally due within 15 calendar days after the first sale. Verify the issuer and offering in the SEC’s EDGAR system where applicable, then check state notices and any required intermediary registrations. A filing can be late, incomplete or associated with an entity that is not the person soliciting you.
Check every intermediary
Record the legal name, registration number, physical address and compensation of every broker, finder, platform or adviser involved. Verify licenses through the relevant US regulator or your local securities authority, using contact details obtained independently rather than a link supplied by the salesperson. Ask whether the intermediary or promoter receives a commission, referral payment, carried interest or other benefit if you invest.
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- Pressure to wire money immediately, keep the opportunity secret or bypass your lawyer.
- Claims that the shares are “SEC approved,” that an IPO is guaranteed or imminent, or that an AI label makes unusually high returns nearly certain.
- Unverifiable executives, a mismatched company name, personal payment accounts, cryptocurrency-only settlement or documents that change after you ask questions.
- A promise of scarce inventory without a cap-table position, signed transfer agreement or independently confirmable seller.
- Requests to misstate your income, net worth or investment experience to qualify.
The SEC has warned that pre-IPO scams have used emerging-technology stories, including AI, aggressive solicitation and imminent-IPO claims. Treat those characteristics as reasons to verify more, not as evidence of fraud by themselves.
3. Understand accredited-investor rules before relying on eligibility
Accredited-investor status is a US federal concept and does not apply universally. Under the commonly used individual tests described by the SEC, a person may qualify with a net worth over $1 million excluding the primary residence, or with income over $200,000 individually or $300,000 jointly in each of the previous two years and a reasonable expectation of reaching the same level in the current year. The applicable rule, entity type, spouse or partner treatment and verification method matter.
These thresholds are not a recommendation to invest and are not a measure of whether you can afford a total loss. An issuer using Rule 506(c) must take reasonable steps to verify accredited status; a self-certification may not be enough. Do not provide false information. The SEC announced on September 30, 2026, that it was seeking comment on additional possible ways for individuals to qualify. That proposal is not an implemented change to eligibility, so check the current rule before relying on it.
“Investor demand for private market investment opportunities is growing, and one of my priorities for the Commission is to explore ways to facilitate the ability of individual investors to participate in private markets, while at the same time protecting those investors from bad actors and fraud.”
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4. Demand company records and test the AI claims
Private offerings can provide less standardized disclosure than public-company filings, particularly when offered only to accredited investors. Request an offering memorandum or equivalent disclosure, current financial statements, cash and debt information, operating metrics, a budget, use of proceeds, management biographies and a list of material risks. Ask whether statements are audited, reviewed or unaudited, who performed the work and what qualifications or limitations apply.
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Financial questions
- How much cash is on hand, what is the monthly cash burn and what debt or repayment obligations exist?
- What revenue is recurring, contracted or merely booked as a pilot? Request revenue by customer, product and geography where confidentiality permits.
- What assumptions drive projections, and what happens if the next financing is delayed or arrives at a lower price?
- How will the proceeds be allocated among engineering, compute, sales, debt repayment, acquisitions and other uses? What milestones should that spending achieve?
- Are there related-party transactions, outstanding claims, unusual guarantees or obligations to model providers, cloud vendors or data licensors?
AI-specific evidence requests
“AI company” describes a theme, not a business model. Tailor diligence to the product actually sold:
- Product: What is deployed today, which features are generally available, and what portion is proprietary software, fine-tuning, workflow integration or access to a third-party model?
- Customers: Who pays, under what contract terms, with what renewal, cancellation and service-level provisions? Ask for evidence of usage and retention rather than logos alone.
- Economics: How do training, inference, cloud, hardware, data acquisition and support costs affect gross margin and cash needs at current and projected volumes?
- Concentration: Does the business depend on one model provider, cloud vendor, data source, customer, reseller or license? What happens if pricing, access or terms change?
- Data and rights: Does the company have documented rights to use training and customer data, and are there restrictions on outputs, geographic use or commercialization?
- Performance: Which metrics support accuracy, latency, uptime, safety and productivity claims, under what test set and baseline, and who verified them?
Ask for records that can substantiate the claims: contracts, invoices, anonymized usage reports, retention cohorts, deployment logs, independent assessments and documented assumptions. Confidentiality obligations may require redaction, but “trust us” is not evidence. The SEC specifically advises investors to test whether technology, customer and product claims are reasonable.
5. Read the cap table and security rights
The number of shares offered does not tell you your economic ownership. Obtain a current capitalization table and ask whether it is presented on a fully diluted basis. A fully diluted count generally includes issued shares plus the potential effect of options, warrants, restricted awards and convertible securities. Have the company explain every material category and reconcile the table to the instrument you are buying.
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- Class and seniority: common, preferred, membership or debt interests can have very different priority and protections.
- Liquidation preference: determine whether preferred holders receive a multiple of invested capital before common holders, whether the preference is participating, and how it interacts with other series.
- Conversion: identify voluntary and automatic conversion triggers, conversion ratios and the effect on voting and payout.
- Voting and information: check votes per share, protective provisions, inspection rights, financial reporting frequency and access to material events.
- Anti-dilution: understand weighted-average or other adjustments if a later financing occurs at a lower price.
- Options, warrants and convertibles: review exercise prices, maturities, caps, discounts and conversion mechanics.
- Transfer restrictions: look for company-consent rights, rights of first refusal, co-sale provisions, lockups and required legal opinions.
In a liquidation, debt and preferred securities generally rank ahead of common stock; common holders are typically last in priority. A company can report a high preferred-round valuation while common shares have little or no value in a low-priced sale after senior claims are paid. The governing documents, not the headline valuation, determine this waterfall.
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6. Decide whether the price is defensible
Compare the offered price with the date, security class and terms of the latest financing. A recent preferred financing price is not automatically the value of common stock, restricted stock or a different preferred series. Ask what rights, preferences and conversion terms made that round’s price possible.
Questions for a valuation discussion
- What valuation is being quoted: pre-money, post-money, enterprise value or a per-share figure?
- What fully diluted share count was used, and does it include the option pool, warrants and convertibles?
- How would a new financing at a lower price affect your ownership and payout?
- What sale price would be required for your class to recover its purchase price after debt, preferences, fees and taxes?
- Which assumptions about growth, margins, model costs, customer retention and exit timing are essential to the valuation?
Private-market information can be incomplete, making precise valuation difficult. A broker’s claimed markup, a press article or an AI-sector multiple is not a substitute for company records and a capital-structure analysis. If the seller will not disclose the class, cap table or transfer restrictions, you cannot reasonably compare the price.
7. Plan for restricted liquidity and a possible total loss
Most private-placement securities are restricted. You may be unable to sell when you need cash, and a resale may require issuer consent, a legal opinion, a particular exemption, an approved buyer or a company-sponsored tender. A website or chat group describing a “secondary market” is not proof that a transaction can actually close at the quoted price.
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Liquidity questions to answer in writing
- Can the issuer refuse a transfer, exercise a right of first refusal or require board approval?
- Is there a contractual lockup after an IPO or financing?
- Who finds the buyer, prepares transfer documents and pays legal, platform and settlement costs?
- Has the company completed comparable secondary transfers, and can it provide anonymized terms?
- What happens if the company never goes public, is sold below the preferred preference or shuts down?
Assume an indefinite holding period unless the documents establish a realistic, executable path to liquidity. Keep emergency funds and near-term obligations outside the investment. You should be financially able to lose the entire amount, including fees and taxes, without jeopardizing housing, health care, debt payments or retirement needs.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.8. Review taxes, conflicts and professional advice
Tax treatment can depend on the instrument, jurisdiction, holding period, original-issue discount, exercise events, entity structure and eventual sale. Obtain transaction-specific advice before signing, especially for options, restricted stock, convertible notes or an offshore vehicle. A tax adviser cannot certify the company’s valuation or protect you from a bad deal.
A securities lawyer can review the purchase agreement, disclosure, exemption, cap table and transfer restrictions. An appropriately registered investment professional may help evaluate concentration and suitability. Ask each professional how they are paid, whether they or an affiliate can trade in the security, and what conflicts they manage. Verify credentials through the applicable regulator. Professional review reduces document and process risk; it does not guarantee performance or liquidity.
9. Use a go/no-go decision process
Organize the decision around verifiable conditions rather than enthusiasm about the technology.
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Proceed only when you can document
- The issuer, seller, intermediary, security class, price, closing mechanics and primary-versus-secondary status.
- The offering exemption, relevant filings and the legal authority to sell the securities to you.
- Financial statements, cash and debt information, use of proceeds, management background and evidence supporting material AI, customer and revenue claims.
- A current fully diluted cap table and a clear explanation of preferences, conversion, voting, dilution and transfer rights.
- A realistic plan for holding the investment indefinitely and absorbing a total loss.
- Independent review of legal and tax consequences proportionate to the amount at risk.
Stop and investigate when
- Documents are missing, inconsistent, unsigned or sent only after you wire funds.
- The seller refuses to identify the security class, cap table treatment or transfer restrictions.
- The pitch relies on guaranteed returns, an imminent IPO, “SEC approval” or pressure to act before review.
- Payment instructions change by email, the recipient is unrelated to the issuer or intermediary, or you are asked to misrepresent eligibility.
- The investment would consume money needed for essential expenses or leave your portfolio dangerously concentrated.
10. A document checklist you can send the seller
Request the following in one written package and keep the versions you reviewed:
- Term sheet and complete purchase or subscription agreement.
- Charter, certificate of incorporation or operating agreement, including amendments.
- Investor-rights, voting, transfer and right-of-first-refusal agreements that bind the security.
- Current cap table on a fully diluted basis, with an explanation of every option, warrant and convertible.
- Offering memorandum or equivalent disclosure and the claimed securities-law exemption.
- Recent financial statements, audit or review report, cash balance, debt schedule and current budget.
- Use-of-proceeds schedule and milestones tied to the financing.
- Material customer, licensing, intellectual-property, data-rights and model-provider agreements, subject to lawful redaction.
- Management biographies, litigation and regulatory disclosures, and related-party transactions.
- Issuer and intermediary registration details, Form D information where applicable, and written transfer procedures.
Have the company answer material questions in writing. Preserve emails, versions, wire instructions and representations; they may matter if the transaction is disputed.
Bottom line: treat an AI share offer as a complex private security
The safest starting assumption is that you are buying an illiquid, difficult-to-value security with limited disclosure and a real possibility of total loss. Verify the legal instrument and seller, test the company’s evidence, understand the cap table and payout order, confirm the offering route, and plan for no liquidity. If the issuer cannot supply coherent documents or resists independent review, declining the deal is a valid investment decision.
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