View Full Version : Equity Crowdfunding: Everything That will Change Monday the 23rd!

09-18-2013, 08:47 PM
This comign Monday is huge for the crowdfunding industry. Th eGeneral Solicitation rule will no longer be in affect meaning several things, all which should help the Equity crowdfunding market grow substantially. Come monday September 23rd all the the following will happen (thanks to http://www.entrepreneur.com/article/228447):

1. Public companies can advertise that they are raising money. Where previously, it would be illegal for a private company to even tell a newspaper reporter that it is seeking funding, the new 506(c) general solicitation rule will, as of Monday, allow entrepreneurs to tell anyone they want that they are raising money. They can tweet about it, blog about it, email customers about it, post on Facebook about it and employ any other avenues of public advertising. This change stands to benefit startups, hedge fund managers, broker dealers, angel groups, web platforms, venture capital firms and any other stakeholder with private company stock.

"I think there is a lot of cautious optimism from small businesses and the entrepreneurs we are talking to about the ease of identifying potential investors and utilizing modern communications technology, email and social networking tools to start the conversation with potential investors. Until this change goes into effect, the ability of companies to find investors is severely restricted," says Eakin.

Not only does the law change help entrepreneurs seeking capital, but it will make it easier for investors to find cash-hungry startups. "What we are excited about is this allows for the democratization of information flow. Today, only the top tier venture firms and angel investors have access to many private offerings because there is no information available in the marketplace," Eakin says.

2. Only accredited investors can actually purchase equity in a private company. While the lift of the ban means that entrepreneurs can tell the world that they are raising money, it's still only accredited investors who are able to make investments, explains Jay Kalish, general counsel at the equity crowdfunding platform, OurCrowd, on a conference call with reporters and investors earlier this week.

In the U.S., an accredited investor has to have $200,000 in annual income over the past two years and be able to prove a reasonable expectation that he or she will maintain such an income during the current year, or $1 million in net worth, not including the value of his or her primary home. Also, anyone with a history of fraud or a felon, a so-called "bad actor," will not be able to participate.

3. Your mom, grandma and sister will all start to see more advertisements from startups, even if they aren't accredited investors. While only accredited investors will be able to purchase private company stock, everyone is going to see more advertisements. "For the non-accredited investor, the regular consumer, you can't stop what is being publicly put in your face, right? Just by virtue of being a consumer of media and just a consumer, period, you will be messaged, too, and that is different than before. It used to be that the SEC prevented you from seeing these sorts of things," says Mittal. "There is a whole new type of messaging that regular people will be exposed to."

4. Accredited investors need a third party to verify their wealth. Before Sept. 23, investors are able to self-attest their own financial worth, thus validating their status as accredited investors. But after Sept. 23, self-accreditation is no longer sufficient, says Kalish. Instead, an investor who wants to buy private company stock will be required to verify their accredited investor status with certification from a third-party broker dealer, accountant, or lawyer, for example.

5. The amount of paperwork to be required by an entrepreneur that opts to generally solicit is still undecided. Separate regulations will determine when and how often a private company needs to file a Regulation D form surrounding a general solicitation. The current proposal, which is not yet finalized, is for an entrepreneur to have to file a Regulation D form at least 15 days prior to generally soliciting an offering and another after the solicitation is ended. A public comment period on these regulations ends Sept. 23 and then the SEC will hand down final rules. The expectation is that the regulations will be final by the end of the year, says Kalish.

Also, the industry is waiting to learn whether the SEC requires that private companies put a "legend," or warning label, on their marketing materials warning potential investors of the risks associated with investing in private companies

Now we just have to wait for the other show to drop and we will really be in business. Exciting times are coming guys, and some amazing opportunities which will even the playing field!