Using General Solicitation

As of September 23rd, 2013 the SEC has changed the rules for companies raising Equity Capital from Accredited Investors.

What has changed?

Prior to September 23rd, 2013 companies engaging in a fundraising campaign could not publicly state that they were raising money. This made it very difficult for companies to let the world know they were looking for investors.

With the new rules enacted, companies can now publicly talk about their fundraise, attracting a much broader audience of potential investors.

What changes if I Generally Solicit?

The moment you begin publicly soliciting your fundraise (beyond friends, family, and personal connections) you will be required to take "Reasonable Steps" to verify that your investors are Accredited.

What is an Accredited Investor?

An Accredited Investor, as defined by the SEC, is an individual that meets at least one of the following criteria:

1. An individual with a net worth that exceeds $1 million at the time of purchase, excluding the value of their primary residence.

2. An individual with income exceeding $200,000 in each of the two most recent years, or joint income of $300,000 with their spouse.

There are a few more instances where someone may qualify as an Accredited Investor listed here.

What are "Reasonable Steps" to verify my investors are Accredited?

The SEC defines "Reasonable Steps" to include:

1. Reviewing copies of any IRS form that reports the income of the purchaser and obtaining a written representation that the purchaser will likely continue to earn the necessary income in the current year.

2. Receiving a written confirmation from a registered broker-dealer, SEC-registered investment advisor, licensed attorney, or certified public accountant that such entity or person has taken reasonable steps to verify the purchaser's accredited status.

When will I need to verify my investors as Accredited?

You will need to verify the investor's Accredited status before the actual sale of securities. Until the sale occurs (when you close), this requirement is not enforced.

What can Companies post publicly about their raise?

Only factual statements. You cannot post anything that is considered hyperbole or forward-looking predictions.

Not a factual statement: "This is going to be the next Facebook!"

Factual statement: "We have acquired 60,000 users in the past month."

Investors are unlikely to be swayed by hyperbole anyway -- in fact, typically it works against your fundraise and damages your credibility.

What if I don't Generally Solicit? What changes?

If you don't engage in General Solicitation you will not be required to take "Reasonable Steps" to validate the Accreditation status of your investors. 

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