Corporate Finance & Securities

General Solicitation and Why 506(c) Matters to Your Startup

There has been a lot of buzz within the investment community about equity crowdfunding for both accredited investors under 506(c) and for non-accredited investors under Title III of the JOBs Act and recently enacted state law exemptions, including the crowdfunding bill recently passed (but not yet enacted) in Washington.

The main feature of both types of crowdfunding is the company’s ability to spread the news about the investment through the community, by advertisement and public broadcast.

Historically, or rather from the early 1930s until last year, you could not spread the news about such a “private placement” generally, as doing so by default made the offering “public,” triggering onerous securities regulations that can be incredibly expensive to comply with. Instead, investors learned...

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Corporate Finance & Securities

Helpful Guide for General Solicitation and Start-up Fundraising

Joe Wallin, editor at Startup Law Blog, recently collaborated with Lauren Hakala, editor at Practical Law Company, on a guide that discusses the law, guidance and open questions on what activities constitute general solicitation or advertising in the context of transactions relying on the Rule 506 safe harbor from Securities Act registration. For those interested in learning more about the changing landscape of startup capital raising, you should check out this guide.

Specifically, the guide provides information about:

Implications of Using General Solicitation Public Website, Social Media and Print or Broadcast Mentions of Offerings Online Funding Platforms Product Advertising and Business Announcements Demo Days, Pitch Events and Other Meet-Ups

Check out the full article here.

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Corporate Finance & Securities

Small Business Fundraising Goes Public: Advertising Your Securities Offering on a T-shirt?

Two weeks ago the SEC lifted the more than 80 year ban on using general solicitation to raise capital for your business. Companies can announce to the world that they are seeking funding, and accredited investors can connect with these companies in order to purchase the company’s shares.  A recent Wall Street Journal article details the recent changes and how they are effecting small business fundraising. Specifically, the article explores a New York-based artisan pickle business, Rick’s Picks LLC, that is using CircleUp—a third party fundraising platform that connects accredited investors with consumer-product businesses—to raise funds; a San Francisco-based children’s trading card company, Nukotoys Inc., using T-shirts to announce its fundraising; and a Washington-based broadband company, Rural Broadband Co., with...

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Corporate Finance & Securities

A New Way to Solicit Investment in Private Funds, 506(c) “Crowdfunding”

click here to view or download this article

As of September 23, managers of hedge funds and other types of private funds can publicly solicit investment for their funds. As part of the JOBS Act, there’s a new way to conduct “private placements”.

Private placements are the offering of securities without the filing of a registration statement. Filing a registration statement, sometimes called “going public”, is an (often prohibitively) expensive process and requires annual and quarterly public disclosures, including information many funds would consider to be trade secrets.

Before the provisions of the JOBS Act were enacted, private funds could only offer interests in the fund to individuals with which the fund operators had an existing relationship. Now, if funds comply with all...

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Corporate Finance & Securities

Rule 506(c): A Different Type of Crowdfunding?

I read a recent article on Joe Wallin’s Startup Law Blog regarding the differences between crowdfunding and Rule 506(c) offerings. Because of the recent changes to the SEC’s Rule 506 under Regulation D, I figured our readers would be equally interested in learning more about crowdfunding and Rule 506(c). I’ve highlighted some of the main points of Joe’s article below and included some of our thoughts about 506(c) offerings and crowdfunding.

Why all the chatter? In the last year and a half, there has been a lot of talk about crowdfunding, general solicitation, and other innovative ways of raising capital. The chatter has increased recently because of the SEC’s recent repeal of the ban on general solicitation. The repeal of the ban...

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Corporate Finance & Securities

Understanding the SEC’s Final Rules on General Solicitations

There are a lot of differing facts swirling around the startup community in regards to the new rules that will allow general solicitation when raising money for your company. We wanted to take a few minutes to explain some of the common questions and concerns that we’ve heard recently.

Background For as long as you and I have been alive, companies that were raising money under Rule 506 of Regulation D could not generally solicit their offers. However, on September 23, 2013, startups and other companies are going to be able to use general solicitation to offer their securities to investors under the new Rule 506(c) of Regulation D. Check out our post on private placement exemptions to learn more about securities...

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Corporate Finance & Securities

The SEC’s Proposed Amendments to Regulation D, Form D and Rule 156

click here to view or download this article Background

The proposed rules discussed in this article are a part of a major regulatory shift in the US private securities markets. For the last 80 years, American companies seeking to raise capital by selling stock have been faced with the alternative choices of conducting an offering without using general solicitation (a private offering) or registering the offering with the SEC (“going public”).

In 2012 Congress passed the JOBS Act. Part of the JOBS Act (Title II, to be specific) created a new way to offer stock, allowing general solicitation within the existing private placement framework. This new rule is called Rule 506(c). Securities issuers can still use the old rules, including the old Rule...

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Corporate Finance & Securities

Changes On the Horizon for Filing Private Placement Memoranda

Beginning on Monday, December 3, 2012, members of Financial Industry Regulatory Authority (FINRA) must file a copy of any private placement memorandum, term sheet, or other offering document used within 15 calendar days from the date the sale took place; the filer will have a continuing obligation to file any materially amended versions of the offering documents; if no offering documents are used, it must indicate that it did not do so; and filings must be made electronically with FINRA through the FINRA Firm Gateway.

FINRA has taken active steps to increase transparency and investor protection in private placements. In addition to the Rule 5123 filing requirements, Rule 5122 establishes standards on disclosure, use of proceeds, and a filing requirement for...

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Business Startup

iVLG News Roundup Weeks 38 & 39: Securities Regulation, Mergers & Acquisitions, and IPOs

Securities Regulation

Consumer advocacy group urges SEC to reconsider rules lifting ban on general solicitation Consumer Federation of America submitted a comment letter to the SEC expressing its, “strong opposition to the Commission’s proposed rule to lift the ban on general solicitation and advertising in private offerings.” On August 29th, the SEC issued proposed rules which would implement Title II of the JOBS Act, allowing companies issuing securities pursuant to Rule 506 to utilize general solicitation under certain conditions. The Consumer Federation of America identified a number of substantive and procedural concerns, including:

That the standard for “reasonable steps to verify” was too broad to allow for protection of consumers; That the accredited investor standard doesn’t capture investor sophistication–basically the concern is that accredited...

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Corporate Finance & Securities

NASAA JOBS Act Comment Letter: Suggestions for New Rule 506

Last week Jack Herstein, president of NASAA wrote a comment letter to the SEC on rulemakings under Titles II, III, and IV of the JOBS Act. The comments related to Title II, which authorizes general solicitation under Rule 506 of Regulation D, are particularly interesting since the Title II rules may be implemented as early as August (the rules were supposed to be enacted by July 4, but that was a fairly unrealistic timeline that Congress set).

NASAA’s Suggestions for Title II Rulemaking

NASAA separated its Title II suggestions into four categories: verification requirements, regulation of platforms, filing requirements, and deceptive advertising.

Verification Requirements Background: The current 506 regulations require issuers to “reasonably believe” that the investors satisfy the requirements to be an accredited...

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