Raising Capital? Shout It From the Rooftops!
The Securities and Exchange Commission (SEC) voted to overturn the ban on “general solicitation” or publicly advertising that your company is raising money. As a result, the SEC has deemed it legal for private companies to tell anyone that they are raising money, which was previously illegal.
How This Effects Startups
The lifting of the ban is expected to have a huge effect on entrepreneurs and startups by allowing them to reach a much broader audience. Previously, an entrepreneur could not tell a newspaper that it was seeking funding. They had to quietly and privately deal with a very small group of investors who had free rein over deal flow.
By allowing entrepreneurs to publicly advertise that they are fundraising will open the private market to a significantly broader pool of investors. One of the more substantial sources of capital that this regulation will affect comes from crowdfunding. Companies are legally allowed to sell equity in their company to accredited investors (and in some cases un-accredited investors) which will drastically increase entrepreneurs access to capital. For more information regarding the amendments to the private offering rules from SEC visit this link.
With the solicitation ban lifted, more investors will know about startups they can invest in. While there is certainly a lot of benefit for entrepreneurs and startups, many are calling for the need to add regulation to reduce the risk of fraud and other undesirable outcomes.