SEC ALLOWS STARTUPS TO BEGIN ADVERTISING THEIR FUNDRAISING

By James Forrest

In a move that will bring about meaningful changes to the ways that companies may advertise their fundraising efforts, the Securities and Exchange Commission (SEC) recently voted to implement section 201 (a) of the Jumpstart Our Business Startups (JOBS) Act.

This section of the 2012 legislation aimed at boosting American entrepreneurship allows startup businesses, venture capitalists, and hedge funds to openly advertise their private offering fundraising efforts. Previously, companies had to go public with stock offerings in order to advertise their fundraising efforts.  Now, with the implementation of section 201 (a) of the JOBS Act, the SEC has done away with the general solicitation ban on private companies that’s been in place for more than eight decades.

As a result of the new deregulation, private companies can continue to stay private, without being limited to word-of-mouth and private communications to raise money. These entities can advertise their fundraising efforts as they wish, along with using traditional methods of private fundraising.

It’s important to note that investment under the new deregulation is still limited to accredited investors with liquid net worth topping the $1 million mark, and fundraisers will need to use their reasonable efforts to ensure that their investors are in fact accredited. The SEC has yet to rule on the concept of crowdfunding.  This scenario would involve stripping away the requirement that startups openly raise money solely from accredited, high-net worth investors.

As the economy continues to recover, it’s an exciting time to be an entrepreneur—perhaps nowhere more so than in the Triangle.  We are thrilled by the prospect that the thousands of smart companies popping up in our area year after year will have greater marketing flexibility as it relates to fundraising.