All posts tagged solicitation of funds

Can I Talk To the Press?

Can I Talk To the PressQ: My company is conducting a non-generally solicited offering under Rule 506(b). We have held our first closing and filed our Forms D with the SEC and various state securities departments. Now the press has picked up the Form D filing and reported about it in the paper. We didn’t talk to the newspaper that reported on it, but it they reported it anyway.

Now that the news is out, can I talk to the press about the offering, or will that blow my Rule 506(b) non-generally solicited offering status, and throw me into Rule 506(c)?

A: No, you can’t talk to the press about your non-generally solicited offering under Rule 506(b) as long as the offering is ongoing. And even after the offering is completed, you will want to exercise a lot of care in talking to the press, if, for example, you plan to conduct another offering in the near future under Rule 506(b).

It doesn’t matter that the press reported on it, based on the a Form D that you were required to file with the SEC within 15 days of the first sale.

To conduct your offering in accordance with Rule 506(b), you can’t “generally solicit” or “generally advertise” your offering.  Talking to the press about your offering would constitute “general solicitation” or “general advertising.”

If you did talk to the press about your offering while it was ongoing, that would put you in Rule 506(c), and then you would have to comply with the various obligations associated with Rule 506(c) offerings–namely:

1) Taking reasonable steps to confirm the accredited investor status of your investors, meaning reviewing Forms W-2 or similar financial statements of your investors and keeping records that you did so;

2) Checking the box that you relied on Rule 506(c) in your offering; and

3) Not taking any money from non-accredited investors.

Read my blog post The Pros and Cons of General Solicitation.

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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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Innovation Up In Flames

Your Idea (2)Thanks to the SEC, you may inadvertently blow up your next company.

Here is how it could happen.

You come up with an idea. You talk to some friends about it. They convince you to apply to pitch at an upcoming weekend pitch competition. A bunch of VCs, angel investors and other folks are going to be there.

You go and do your thing. Your pitch is well received, despite the fact that you didn’t know what you were doing. Some friends and other folks who are there helped you. It was great fun. A thrill.

A few weeks goes by. You have been receiving emails and some phone calls from folks who wanted to follow up with you. You knew you would need a lawyer, but not until you knew your idea could fly.

About two weeks later, one of the angels who attended the pitch event wants to invest, and you reach agreement with him on terms. The valuation is roughly what you suggested it would be in your pitch.

You call a lawyer. She asks you if you filed an Advance Form D before pitching at the public event. You wonder what the heck she is talking about. None of your friends in the startup community told you about any “Advance Form D” filing.

She tells you that since you didn’t file the form 15 days before you pitched, and didn’t cure your failure to file within 30 days after missing the 15 day advance filing deadline, you are screwed.

    “You are in the 1 year penalty box,” she says.
    “What do you mean,” you ask.
    “I mean,” she says, “that after this round you won’t be allowed to rely upon Rule 506, the most commonly used securities law exemption for startups, for a year after this round closes.”

You feel terrible. You wish someone had told you. You also wish the SEC hadn’t seen fit to put such a rule in place in the first place.


If you are new to the startup ecosystem, please be aware that it has always been illegal to generally solicit or advertise your private securities offerings. This has changed a little recently with the enactment of the JOBS Act and the SEC rules that have just come out in connection with the JOBS Act. However, as I wrote in a blog post recently published in the Wall Street Journal, generally soliciting or generally advertising your securities offering is fraught with difficulty. Always consult counsel before you proceed. Please don’t turn out like the character in this story. Do not assume the law in this context is easy. It is not, unfortunately.

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