Who was General Solicitation?
The short answer: publicly advertising that you are selling securities.
The longer answer begins in 1933. That year, Congress passed the Securities Act. (If you like primary sources you can download the full text here, from the SEC’s website; or if you prefer Wikipedia, go here.
The Securities Act was intended to ensure that anyone that bought securities (that is, gave money to a company in exchange for shares in the company, or other similar arrangements) received accurate and sufficient information before they made the purchase. It also set the SEC to ensure that happened. After the Act, all securities being sold have to be “registered” with the SEC – unless the “issuer” (the seller) of the securities proves it is exempt from that registration (under Section 4(a)(2) of the Act, which is popularly known as the “private placement” exemption).
The current rules about registration are set out in Regulation D (17 C.F.R. §230.501 et seq., text linked here) that was created by the SEC in 1982. There are several ways to be exempt from registration, but a popular one is set out in Rule 506.
Rule 506 says you can sell as many securities, and raise as much money, as you want, as long as you answer buyers’ questions, provide them with financial statements, and sell “restricted securities” (basically those are shares that are not easily sold). If you do that, then under part B of the rule (called 506(b)) you can sell them to an unlimited number of accredited investors and up to 35 non-accredited investors – as long as you do not engage in “general solicitation”.
(That’s how things stood until new rules (Rule 506(c)) permitted general solicitation on certain conditions. We’ll discuss these in a future post.)
So, if you want to sell securities but don’t want to register with the SEC, you do a “private placement” and do not engage in general solicitation.
Then back to the question: what actually is general solicitation?
In a related rule (Rule 502(c)) the SEC says general solicitation includes:
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“Any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio”
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or (enjoyably circular) “Any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.”
And later guidance added that using a public website (with no passwords) to offer securities is general solicitation.
There isn’t a comprehensive definition of everything that might be “general solicitation,” but, in addition to the specific guidance from the SEC, it’s prudent to assume that anything that involves publicly stating specifically that you are selling securities – or even more vaguely that you are raising capital – opens you to a potential accusation of general solicitation.
Advertising in the NY Times; writing blog posts about your offering; tweeting about your fundraising plans and progress; creating Eventbrite events and advertising seminars where you invite people to come hear about your offering… All are definitely general solicitation.
Many other things – emailing to your entire contact list; emailing people from a list of angel investors you found online; tweeting about being in the process of raising capital; having other people do these things for you – are either definitely general solicitation or so debatable that only a reckless entrepreneur would do them without first thoroughly understanding the implications of doing general solicitation.