Beware, Forms D Are Public

Forms DBy Christina Chan & Joe Wallin

If you haven’t been through the process of raising money for a startup before, you may not be aware of this, but when you raise money from angels or VCs you are generally required to file a Form D with the SEC and state securities regulators.

You can find the Form D at the following link:  http://www.sec.gov/about/forms/formd.pdf

Now, in general, filing a Form D might not sound too bad.  After all, it is only 4 pages long before the instructions and continuation pages (and 11 pages with all of those included), and the disclosure required is not that onerous (e.g., names of officers and directors, amount to be raised, amount raised so far).  But there are a few rubs.

Forms dFirst, the fact of disclosure itself.  What if you and your co-founders are working this startup as your “side hustle”?  What if you all have day jobs at big companies around town and you don’t necessarily want your name on a public document filed with the SEC saying you are the executive officer of a startup?  Unfortunately, the form requires all directors and executive officers to be disclosed.

forms dSecond, there are deadlines for filing the Form D.  Under the current rules, the Form D is supposed to be filed with the SEC no later than 15 days after the date of the first sale of securities (even the IRS gives you 30 days to file an 83(b)).  The rules define “date of first sale” as follows:  “the date on which the first investor is irrevocably contractually committed to invest.  If the due date falls on a Saturday, Sunday or holiday, it is moved to the next business day.”  So, you have a relatively short timeline in which to file your Form D timely.  It is actually pretty easy for a company to miss this deadline.  The deadline is especially short because you can’t just file the form.  First, you have to get Edgar filing codes and that form must be notarized.  Obtaining the filing codes typically takes a couple of days in and of itself.

forms dThird, the form you file, the Form D, is a public filing.  Forms D used to be paper filed only.  But they are now required to be filed electronically and various media outlets monitor these filings to report on them.

The Press

You may be alarmed when, after filing your Form D, the press reports about your fundraising efforts, or an article is written about your fundraising efforts.  You may be even more alarmed when a reporter calls out of the blue and wants you to talk about your financing raising efforts for an article.

Be careful if your offering is ongoing because if you are conducting a non-generally solicited Rule 506(b) offering, you cannot comment on your offering to the press.  Even if the press reports about your Form D filing incorrectly, you do not want to call and correct them.

To protect your 506(b) status, the safest thing to do if contracted by a reporter who is asking questions about your offering is tell the reporter, “Due to SEC rules, I am unable to provide details at this time.” That refers them to the SEC regulation rather than delving further into your offering and may help clarify the reporter’s understanding of the regulations.

Christina Chan – Associate – DWT – Christina focuses on representing startups and emerging companies and mature public and private companies.

About Joe Wallin

Joe Wallin focuses on emerging, high growth, and startup companies. Joe frequently represents companies in angel and venture financings, mergers and acquisitions, and other significant business transactions. Joe also represents investors in U.S. businesses, and provides general counsel services for companies from startup to post-public.
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  • Gary Jay Brooks

    What would you do if you took a single angel(s) money a few years ago, and never filed form D. Lets assume that they gave you $300,000.00. Now step forward and we start a 506(c) today, do we need to back track to a $300,000 angel round you never filed? Are you going to get in trouble if they come in and give you a audit?

    The other condition is that possibly this $300,000 earns no equity in the company and it’s strictly a loan. How do you define when your supposed to file or not.

    Thanks for the blog. You have great content.

    @garyjaybrooks

    • http://startuplawblog.com/joewallin Joe Wallin

      Best to talk about this on the phone. Call me any time. 206 757 8184

      • Gary Jay Brooks

        I’ll have to call later, I’m sitting in a loud cafe. The best place to read your blogs over coffee.

        • http://startuplawblog.com/joewallin Joe Wallin

          nice…well, if we don’t talk before the holiday, have a great one!