More Freedom to Raise Capital…Entrepreneurs Can Now Pitch Publicly

By SBE Council at 23 September, 2013, 2:45 pm

by Karen Kerrigan-

September 23 marks the day that Title II of the Jump Start our Businesses Startup (JOBS) Act kicks in. Entrepreneurs have more freedom to raise capital from accredited investors, but there are important rules to follow.

A new day for entrepreneurs.

For about 80 years, the Securities and Exchange Commission (SEC) did not allow capital-seeking entrepreneurs the opportunity to market or advertise their offerings.  With the signing of the JOBS Act, and specifically the finalization of Title II rules by the SEC, the ban on general solicitation is now lifted.  This means entrepreneurs have greater freedom to communicate their capital needs and offerings to potential investors. Entrepreneurs can pitch publicly.  But only “accredited investors” can invest in the soliciting business. As SBE Council member and advisor Sherwood Neiss notes in this piece on his Crowdfund Capital Advisors website:

While anyone can see the solicitation for funds, the completed sales, must only be to “accredited investors” and the Issuer (the company, broker/dealer or 3rd party Web platform) has the burden to verify that the investor is “accredited.” An accredited investor is someone who makes over $200,000 for the last 2 years or has a liquid net worth of $1M.

The burden of verification — taking “reasonable steps” to do so as required by the SEC — by the entrepreneur/issuer is a departure from self-certification. Some feel this burden undermines the purpose of the JOBS Act and could kill deals and opportunities for entrepreneurs.  Others do not think it is that big of a deal. The Angel Capital Association recently developed guidance for its members in adhering to the principle-based standard established by the SEC for determining what constitutes “reasonable steps.”

In the future, the SEC may also require additional, detailed filings from entrepreneurs pre and post solicitation.  The SEC proposed these new filings when they approved the new rules that lifted the solicitation ban. They are currently taking comments from the public. SBE Council’s chief concern is that the SEC may require extensive and unnecessary information from the entrepreneur, which – again – would undermine the purpose and intent of the JOBS Act.

What about crowd investing for all?  Title III of the JOBS  Act (which is the provision related to crowdfunding) is still in the pipeline at the SEC.  Once these regulations are finalized, non-accredited investors will be able to invest in businesses more freely as well.  Sherwood touches on this larger issue as well as the basic rules of general solicitation in this MSNBC appearance with JJ Ramberg (September 22).

Judd Hollis founder and CEO of EquityNet also provides a primer and advice for small businesses on the new rules on general solicitation in The Washington Post.

SBE Council friend Chance Barnett, founder of Crowdfunder, penned a piece for Forbes, which also has useful information for  entrepreneurs:  The Crowdfunder’s Guide to General Solicitation and Title II of the JOBS Act

Chance also appeared on FOX Business News After The Bell (Video), and was interviewed on Venture Beat: Crowdfunding: With JOBS Act Title II, the web will ‘eat financing and investing’

Crowdfunder also hosted a FREE Webinar on How General Solicitation Works (Recorded)

Another good piece in Forbes by Tonya Prive: General Solicitation Lifted Today – Three Things You Must Know

It is an exciting day for entrepreneurs. In the days ahead, the SEC will closely monitor how general solicitation is playing out in the marketplace.  Of course, and as noted above, additional and complex requirements may be instituted.  SBE Council is pushing for a light and common sense approach that supports the intent and purpose of the JOBS Act.  In addition, the rules will be forthcoming on Title III (crowdfunding). Hopefully, these will be a reasonable set of rules that harness the power of crowdfunding and the great potential of America’s entrepreneurs.

Karen Kerrigan, President & CEO