What is a dispute?
A dispute occurs when an investor questions their payment with either their card issuer (for credit card transactions) or with their bank (for bank-to-bank transactions) with the hope that the payment will ultimately be returned to them.
What is a chargeback?
A chargeback is when the investor is successful with their dispute claim and they receive their money back. A chargeback occurs after an investor creates a formal dispute and their financial institution ultimately sides with the investor and claws back their payment. For credit card transactions, there is the ability for your company to challenge the dispute for investors already accepted into your raise (within a limited time frame), in which case evidence is provided to the financial institution (ex. the signed subscription agreement, evidence of shares being issued) that substantiates the legitimate transaction with the hope that the financial institution sides with your company and does not proceed with a chargeback. For bank-to-bank transactions, there is no mechanism to contest the dispute therefore it is automatically in favour of the investor and a chargeback is initiated.
If a chargeback does occur from an accepted investor, your company always has the option to pursue the investor civilly, as the investor did sign an agreement obligating them to pay and the company relied on that information. Further, if shares had been issued prior to the chargeback, your company may independently pursue the investor as a receivable.
When can an investor dispute a claim?
An investor (or their financial institution) can dispute either a credit card payment or a bank-to-bank transfer up to approximately 120 calendar days after the payment has been made. Generally, investors will initiate the dispute process without contacting the company.
DealMaker recommends that your company's Investor Relations (IR) team maintain constant contact with your prospective investors in order to reduce risk of a dispute claim (and ultimately a chargeback). Click here for more information on how to manage a dispute claim.