SEC Rules Regarding General Solicitation Go into Effect, Crowdfunding Community Responds
Earlier this week, the Securities Exchange Commission’s (SEC) final rules allowing general solicitation went into effect. General solicitation broadly means the public advertisement that an entrepreneur or business is raising capital via the sale of securities (e.g., stock, loans, and bonds). The new rules are a major step toward a true U.S. investment crowdfunding market that should dramatically increase the availability of startup capital.
However, entrepreneurs and members of the startup support community must be cautious since startups can only accept capital from accredited investors until other provisions of the JOBS Act are passed that allow the sale of securities to unaccredited investors (see the March 28 Digest). Under the new rules, entrepreneurs must take reasonable steps to verify that all of their investors are accredited or face the potential of losing their exemption from registering with the SEC – a costly, long process. To ensure that this does not happen, it is vital that members of the startup support community play an active role in helping startups confirm that all investors are accredited. Incubators, accelerators and business plan event hosts also will need to be prepared for the new rules because most demo days and pitch competitions likely are to be considered general solicitation.
Several members of the crowdfunding community, including high-profile portals, recently have announced new/expansion of business ventures. AngelList, one of the country’s largest crowdfunding sites for accredited investors, announced that it will provide verification services to ensure that crowdfunding investors are accredited. RockThePost, an investment crowdfunding portal, hosted a digital demo day and four startups will pitch to investors over a livestream. Since the rules went into effect, several startup and existing firms have taken advantage of the new rules, including TechShop who wants to raise up to $60 million in capital to expand its chain of fabrication studios and workshops around the country.
On Thursday, October 3, the Angel Capital Association will host a complimentary webinar to discuss the impact of the SEC lifting the ban on general solicitation and other proposed crowdfunding rules on entrepreneurs and members of the startup support community. The webinar will highlight important issues that entrepreneurs and the professionals who support them need to know to protect themselves in this new financing world. Register for the call…
crowdfunding, capital