Reverse solicitations: Can I respond when someone solicits my solicitation?
If someone publicly asks entrepreneurs to send them investment opportunities, but the entrepreneur doesn’t know them already, would replying blow the entrepreneurs’s 506(b) exemption?
As one example, we read recently a tweet that said:
“If you’re currently in the process of raising $1 to $1.5M & have a Product live, I’d love to see your deck. Send me a DM.”
If an entrepreneur replied to that tweet, could they have shown a pre-existing, substantive relationship?
If an entrepreneur publicly replied by saying “Sent” (as many entrepreneurs raising money in fact did), how could they argue that was not publicly announcing (to the twitterati, at least) an active fund raising and therefore offer of securities?
Both seem unlikely to be compliant with a 506(b) exemption, so let’s hope everyone was raising under 506(c)!
Even more blatant were several tweet threads that read:
Raising money? Reply with
how much you are raising
Many dozens of people did, across several threads. Seems pretty clear that they generally solicited a purchaser of securities, which would not be compliant with Rule 506(b)! Seems a risky approach to finding an investor.
So our suggestion is that if you see reverse solicitations like this that you figure out a legitimate way that you know these investors before responding – and you keep the communications private.