Equity Crowdfunding and Advertising: Be Careful What You Wish For

It is official — on July 10th, 2013 the Security and Exchange Commission (S.E.C.) lifted the ban for private offering advertising. This means that once the rule goes into effect (60 days after publication in the Federal Register — so we are talking about mid September), startups along with venture capital funds, private equity funds and hedge funds will be able to market their stocks and investment products via TV, radio and social media to a wide audience.

Can I show you my pitch deck?

The new S.E.C. rule is only a partial implementation of the JOBS Act but is a radical departure from an 80-year-old policy that used to keep public in the dark regarding any investment opportunities in private companies.

The biggest irony is that in order to invest into the advertised companies you still have to fit an accredited investors profile having an annual income of at least $200,000 or liquid assets of at least $1 million. If you don’t make the cut, it is sort of like “you can watch it but don’t touch it.”

But things get serious if you are an entrepreneur raising capital. There are at least two very important points:

1) You must pre-register your offering with the S.E.C., filling out a special form called “Form D in Rule 506 (c)” at least 15 days prior your official capital raise;

2) You will be subject to the anti-fraud provisions so any statements regarding the investment opportunity in your company that you post on Tweeter, LinkedIn, Facebook and likes might be considered by the S.E.C. as misleading and will be used against you.

To be on a safe side, I highly recommend studding the comprehensive write up of the new rule by Sara Hanks, an attorney and co-founder of CrowdCheck. Or get an attorney on your own. No jokes.

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