Today, Startups Can Start Raising Money Publicly Thanks to the JOBS Act

September 23, 2013

7:44 am

Today, as part of the implementation of the JOBS Act, the SEC officially lifted the ban on general solicitation, allowing startups to publicly announce that they are raising funding.

In blog posts, online profiles, videos, and mass emails, you may now start to see startups advertise their upcoming funding round. But this newfound freedom comes with a few rules:

  • Investors you do take money from must be accredited. Previously, startups could raise money from up to 35 unaccredited investors that they already knew. An accredited investor is someone with a (joint) net worth of over $1 million, or annual income over $200,000 ($300,000 for a couple).
  • You must verify that they’re accredited. You can do that yourself by reviewing their IRS forms and getting signed statements that they expect their income to continue in the future. Or, you can use registered broker-dealers, investment advisors, attorneys, or public accountants to do the verification for you. One company doing that is CrowdBouncer, and AngelList will verify investors for free.
  • You must file Form D within 15 days of receiving investment. This declares you have made a public 506(c) offering. The SEC has proposed amendments requiring you to file Form D 15 days before beginning your general solicitation, which it will be considering. In any case, not following these rules can result in a one-year ban on fundraising.

The status of demo days is still unclear. Does simply presenting to investors at demo day count as general solicitation, even if you don’t mention funding? Will startups still be willing to announce fundraising plans at demo day if it means complying with the rules above? Only time will tell.

Previously, startups were officially banned from announcing their fundraising plans unless they took the time to do a complicated registration with the SEC. The new general solicitation provisions were approved on July 10.

Curious how this will affect the startup scene? Well, PeoplesVC is already claiming it’s the first to raise money under general solicitation. Entrepreneurs waste no time.

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Kira M. Newman is a Tech Cocktail writer interested in the harsh reality of entrepreneurship, work-life balance, and psychology. She is the founder of The Year of Happy and has been traveling around the world interviewing entrepreneurs in Asia, Europe, and North America since 2011. Follow her @kiramnewman or contact kira@tech.co.

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