Ban On General Solicitation Lifted For Private Placement Offers To Accredited Investors
Ban on General Solicitation Lifted for Private Placement Offers to Accredited Investors
Last week the SEC voted to lift the ban on general solicitation for private placement offers to accredited investors. The ban remains in effect for non-accredited investors and the change won’t take effect for 60 days after publication in the Federal Register.
Currently, companies must rely on personal relationships and referrals to get the word out on their private placements. This, of course, limits the companies’ ability to find possible investors.
Using general solicitation – advertising, “pitch fests” and other similar techniques – runs afoul of SEC requirements and taints the private placement offering, causing problems with current investors and effectively preventing future rounds.
While lifting the ban is great news, there are limitations and additional burdens for companies using general solicitation.
First, it will be permitted only in private placement offers to accredited investors. Once general solicitation is utilized in an offering no non-accredited investors may invest.
Next, issuers will be required to file a Form D at least 15 days in advance of advertising and to update that Form D no more than 30 days after the offering is completed or abandoned.
And, finally, issuers using general solicitation will have to confirm (through documentation) that purchasers are, in fact, accredited. Currently the investors need only confirm this to the issuer in writing, without backup documentation (i.e., the honor system).
Unfortunately, there’s still no effective date for the other part of the JOBS Act beneficial to small startups – equity crowdfunding.