Over the last few weeks, we have tried to outline the fundraising regulations you can operate under (506(b) vs. 506(c) and others), who really cares, what can happen when the SEC finds you are fundraising improperly, how these rules apply to venture funds, how...
Other things you cannot do:Regardless of the fundraising rules you choose to operate under, there are a few things that you absolutely cannot do when selling securities. Here are a few:Say that anything is “risk-free” or “guaranteed”. You can provide facts (like the...
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...
Do these rules apply to people raising investment funds, like venture capital funds?Yes, they absolutely do. The rules we have outlined in previous posts in this series apply to anyone selling securities. This is typically companies, but can also be investment funds...
If you undertake general solicitation, you cannot rely on Rule 506(b) to give you an exemption from registration. It does not matter if a sale results from the general solicitation; all that matters is an offer was made by general solicitation. If you lose your...
After financial regulators and potential investors, the third group of people that care are your own disgruntled investors.No startup company goes according to plan, and so (almost) every company has some investors that wish they could take back their investment....
2. Informed investors. If you approach VentureSouth to ask for investment and we suspect you are generally soliciting investors, we will pass – no matter how attractive the opportunity sounds. This happens every few weeks: a company approaches VentureSouth and says...
Assume you are raising money, not really paying attention to posts like those in this series, and you generally solicit investors when you should not. Who cares?Over the next three short posts we’ll tell you three groups that do.1) Financial regulators. The SEC and...
Is publicly saying “we are raising money” the same as publicly soliciting a sale of securities?Well, if you really are not selling securities, you are free to say “we are raising money” without falling under the scope of these regulations. This might be a donation...
As we mentioned a couple of posts back in this series, using 506(c) involves substantial trade offs. For us, it was fun to be able to advertise the fund, expand our relationships, and generate some buzz and interest in the fund; articles in the local press like this...