Questions From Adam Lieb, Founder of Duxter

Adam Lieb of Duxter (2)The other day, Adam Lieb of Duxter and I had the chance to correspond with each other about the SEC’s now effective general solicitation rules and the SEC’s proposed rules regarding Regulation D and Form D.  Adam had a bunch of questions and we both thought that it would be helpful to write a blog post about them.

Questions From a Startup Founder

Adam: When I was in school I participated in a business plan competition. As part of that competition I made “an ask” where I asked the audience to invest in my business and gave terms. Under the proposed rules would I have been required to file with the SEC before the competition?

Joe: Unless this was play acting like in a Shakespeare class, if you were sincerely asking for funds, it would depend on how the event was advertised.  If the event was announced to the public on the Internet, and real prospective investors were in the crowd or on the judging panel (as is often the case), then the answer is almost certainly yes.  The reason for this is the SEC considers the posting of anything on an unrestricted website to be general solicitation.  If the proposed rules go into effect as they are proposed, you would have been required to file an “Advance Form D” 15 days before participating in the competition and making the “ask.”  If you missed this filing because you didn’t know about it, and you didn’t “cure” the mistake within 30 days, you would have been automatically disqualified from using Rule 506 for one year after the end of that offering.  An absurd result.

Adam: Most demo days I have seen have online registrations for entrepreneurs and investors to attend the event. Would this count as general solicitation under the new rules?

Joe: Per SEC guidance, posting something on the unrestricted Internet constitutes general solicitation.  If companies attend these events and pitch for funds, they will likely be considered to have generally solicited their offerings.

Adam: When I am fundraising, I change my fundraising materials A LOT. If I meet an investor three times before getting a yes or a no, and I change my materials each time, would I have to file those materials with the SEC before each meeting?

Joe: Under the proposed rules, if you are generally soliciting, each time you change your written materials you have to submit them to the SEC before their use.

Adam: What is the point of filing my materials with the SEC? Are they going to review them?

Joe: The SEC may very well review them, but is not obligated to do so..

Adam: Can my competitors view the materials I file with the SEC?

Joe: Your Form D, yes.  Your written general solicitation materials, no.

Adam Lieb is the founder & CEO of Duxter, which builds community tools for game developers to engage their fans.

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Long Live Entrepreneur University

NEN(3)When: Friday, October 18th

Time: 8:30 AM – 3:30 PM

Register Here

You started your business and now it’s growing. If the next level is in sight, you shouldn’t miss this event. Sit in on one-on-one conversations between some of the region’s top entrepreneurial thinkers!  It doesn’t matter if you’re in enterprise or consumer products, not-for-profit or already profitable.

  • Start the day as 40 under 40 winner Liz Pearce, CEO of LiquidPlanner, has a cup of coffee with Concur CEO Steve Singh and gets advice on how to take LiquidPlanner to the next level.
  • Listen in as two veterans Monty Montoya (Sight Life) and Robin Wolaner (Vittana) compare what they have learned running their nonprofits as viable businesses.
  • Grab a Foster’s with Aussie entrepreneurs Dave McLauchlan ( CEO) and the inimitable Jenni Hogan (CEO, TVInteract) as they loosen up over a couple of beers and chat about what they’re seeing in the startup landscape.
  • Thinking about applying to an incubator or accelerator? Our friendly “Startup Tank” panel will tell you if you have what it takes.
  • Ready to go viral?  Our “Prime Time Pitches” provide you with priceless PR as the fabulous Jenni Hogan (TVInteract) interviews you on camera and captures the essence of your startup.
  • Select student attendees get structured networking opportunities with Liz Pearce and Julie Sandler of Madrona Venture Group. 
  • Get 1:1 speed meetings with experts and mentors in team-building, finance, legal, sales, marketing, and scaling your startup.

Lunch provided by a “Taste of Pioneer Square” as well as a hosted reception. Sponsor stations with great give-aways and a “Startup Scavenger Hunt” with a grand prize drawing.


  • Entrepreneurs: $139
  • Service Providers: $169
  • Student tickets: $35 – Powered by the Herbert B. Jones Foundation scholarship (Additional information listed below)
  • Late Registration (At the door, day of event): $199

Event ScheduleLocation: Impact Hub Seattle in Pioneer Square, 220 – 2nd Avenue South; Seattle, WA 98104

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10 Things To Do Before Generally Soliciting

10 ThingsCan you generally advertise your private company securities offering now?

Yes! This became possible on September 23, 2013.

But here are some notes of caution. Some suggestions. Some things I’d recommend you do before you generally solicit, if you decide to generally solicit at all.  (Keep in mind, many, many companies will choose not to generally solicit because of the potential complications.)

The overarching suggestion here: If you choose to generally solicit, don’t do anything until you have made sure that you are completely ready and are able to generally solicit in compliance with the rules.

Ten Suggestions

Another example: Can the shareholders take action by less-than-unanimous written consent without a shareholder meeting? If not, this should be fixed as well; otherwise, you may have to hold actual shareholder meetings to approve matters that could otherwise be approved in a less cumbersome way, by less-than-unanimous written consent.

  1. Make sure your company is legally set up to accept investments and make sure you can generally solicit
    Many companies will have organizational documents that are missing key provisions or that handle fundamental governance points in the wrong way. For example, some companies will inadvertently set themselves up so that all shareholders are entitled to statutory preemptive rights. Meaning, the company can’t raise any money from anyone without first giving all existing shareholders notice and an opportunity to participate. Statutory preemptive rights can be cumbersome and they are generally not recommended for angel or venture-backed companies. Be aware that if you sold shares in the last 6 months to non-accredited investors, or if you have non-accredited investors holding convertible notes that will convert on your generally solicited offering, you may NOT be able to generally solicit your offering. The problem? Generally solicited offerings cannot include any non-accredited investors, and if you sold shares in the last six months to non-accredited investors your generally solicited offering may be “integrated” with your prior offering, causing the whole offering to fail to have an exemption. This is another reason it is critical for you to have competent securities counsel on your team.
  2. Are your accounting systems and processes ready?
    Do you have a good accounting system and good accounting practices in place? How soon after the end of each month, quarter and year end can you close your books? Is your accounting team ready to respond to investor requests for financial statements? Under state corporate laws, shareholders are entitled to certain financial information. You will have to be ready to respond to requests for information promptly and efficiently.
  3. What does your board look like?
    Do you have a board of directors that includes at least two independent directors who are neither employees, members of the executive management team, or related to any of them? If not, once you have outside investors how are you going to approve related party transactions? This old standard business advice resounds: Surround yourself with top notch business advisors.
  4. Consider the risks
    Generally soliciting may turn some investors off. Some may refuse to invest even if they otherwise might have.  See: The Pros and Cons of General Solicitation.
  5. Know your Blue Sky securities law or work with a lawyer who does
     Some states may require additional filings before general solicitation (e.g., New York). “Blue Sky” refers to state securities laws.
  6. Beware that the SEC may change the rules on you midstream
     Proposed rules have been issued. No one knows what final form they might take or when they may become final.
  7. Know your investors
    Due diligence is a two way process. It is really important that you don’t accept as an investor in your company someone who doesn’t understand the risks or whose expectations are not consistent with yours. This can literally kill your company. It is easier to get divorced than to get someone off your cap table. Don’t accept just anyone simply because they can provide all the information to show that they qualify to make an investment as an accredited investor.
  8. Construct a general solicitation plan
    General solicitation can include simply putting something on your company’s web site. It can also include running ads on TV. What kind of general solicitation will you conduct? What will you say about your company in your generally solicited statements?  You are going to want to be careful here. Any statements made here in the nature of promises about future performance that turn out to be untrue will subject you to potential personal liability.
  9. Has your board approved the plan?
    It should do so. And you will want it to do so.
  10. Slow down
    If you hurry through this process, you may make a mistake that will be costly financially and in numerous other ways.
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Crowdfunding v. Rule 506(c) Offerings

Crowdfunding v Rule 506A lot of folks are confused about the SEC’s repeal of the ban on general solicitation and how it relates to crowdfunding. Is general solicitation crowdfunding?

The SEC’s repeal of the ban on general solicitation relates to accredited investor-only offerings under Rule 506(c) of Regulation D. Accredited investors are generally individuals with a greater than $1M net worth. This is excluding their primary residence, taking into account debt on that residence in excess of its Fair Market Value (FMV). This includes individuals with incomes in excess of $200,000 in the last two years, with the expectation of the same in the current year, or $300,000 with spouse.

Rule 506(c) allows issuers to raise an unlimited amount of money from accredited investors (subject to the other conditions of the rule). Under SEC new rules, companies can generally solicit their offerings under Rule 506(c) (subject to conditions and requirements).

Rule 506(c) offerings are not crowdfunding offerings under the JOBS Act.  Crowdfunding is embodied in Title III of the JOBS Act. The repeal of the ban on general solicitation in all accredited investor Rule 506 offerings appears in Title II of the JOBS Act.  So, the SEC’s repeal of the ban on general solicitation is not what is referred to as crowdfunding under the JOBS Act.


Crowdfunding under Title III of the JOBS Act will allow sales of securities to both accredited and non-accredited investors, in small amounts (there are individual investor caps), with an aggregate total fund raise capped at $1M during any 12 month period.

Crowdfunding is not yet legal.

The JOBS Act provides that it will not be legal until the SEC issues regulations allowing it. We don’t know when this will happen. Ironically, once crowdfunding becomes legal, companies crowdfunding won’t be able to generally solicit their offerings. Instead, under the JOBS Act, they will not be able to “advertise the terms of the offering, except for notices which direct investors to the funding portal or broker.” See the Full Text of the JOBS Act.

The key differences between Rule 506(c) offerings and crowdfunding offerings are:

  • Rule 506(c) offerings are legal now; an unlimited fund raise is possible, but only from accredited investors. There is no cap on the amount an individual investor can invest or the total all investors may invest collectively. General solicitation is allowed. Other conditions apply.  (For example, there is an obligation to take reasonable steps to verify the accredited investor status of the investors, and to keep records; such as reviewing Forms W-2, etc.)  Companies engaged in Rule 506 offerings are not required to use an intermediary, like a registered broker‑dealer.
  • Crowdfunding under Title III of the JOBS Act is not legal yet; it won’t be legal until the SEC issues regulations and it’s unclear when that will happen. When it does become legal, companies will be able to raise money from both accredited and non-accredited investors, but there will be limits on the amount each investor can invest, and a cap on the overall amount all investors can invest during any 12 month period. No advertising will be allowed.  Companies that crowdfund will have to use a registered broker or registered funding portal.
Rule 506(c) Crowdfunding
Legal Yet? Yes No
Individual Investor Limits? No Yes
Aggregate Fund Raise Cap? No Yes
Advertising Allowed? Yes.  Companies can use any type of media they like. No, once legal, issuers will not be able to “advertise the terms of the offering, except for notices which direct investors to the funding portal or broker.”
Investors Eligible? Accredited Investors Only Both accredited and nonaccredited investors can participate.
Broker or Intermediary Required? No Yes

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USA-Spain Business Forum

USA to Spain

November 7th, 2013 – 8am to 2pm

The Honorary Consulate of Spain in Seattle, along with Davis Wright Tremaine LLP and the Spanish law firm J&A Garrigues, S.L.P., invite you to join us for the first edition of the USA-Spain Business Forum on November 7th.

The USA-Spain Business Forum is designed to foster relationships and promote partnerships between Spanish and U.S. companies. The event will feature several panels exploring business opportunities and discussing the most relevant legal issues in both countries. The forum will provide an excellent opportunity to meet prominent U.S. and Spanish business leaders and decision-makers.

We hope you can join us. A full invitation and agenda is to come.

Register for the USA-Spain Business Forum


    Davis Wright Tremaine LLP
    1201 Third Avenue, Suite 2200, Seattle

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Sponsored By Spain Sponsors

Spanish business

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