> The problem in the USA is telling everyone you are looking for invstment. That breaks the rules of general solicitation, which the SEC was supposed to have updated last year but has been dragging its feet. So startups can only really talk to accredited investors, and can't talk to their users and tell them they're going to pay dividends or something.
Startups can talk directly to potential investors, both non-accredited and accredited investors (how many non-accredited investors can invest in them depends on which of the exemptions from registration requirements they are taking advantage of), all current registration exemptions however, prohibit general solicitation and advertising and solicitation except that certain state-law conditions can allow general solicitation and advertising for Rule 504 "seed capital" fundraising.
The update the SEC must make under the JOBS Act for general solicitation would remove the general solicitation restriction for offerings that are restricted to accredited investors where the offering firm takes certain steps to verify that any investors qualify as accredited investors. There's also a crowdfunding option that requires an SEC-registered intermediary (and has overall limits similar to the existing seed-capital option in Rule 504.)
Its not clear to me that either is necessary (or even helpful) to a company that wishes to conduct direct solicitation directed to purchasers of the company's existing offerings who are not necessarily qualified as accredited investors.
Okay, I am a bit confused. Right now, most startups are probably advised to make a good-faith effort to ascertain that their investors are indeed accredited. If they engage in general solicitations, then the bar is higher for ascertaining this. Correct?
If I wanted to message all my users and tell them to point their investor friends towards our AngelList profile, wouldn't that be public solicitation?
> Okay, I am a bit confused. Right now, most startups are probably advised to make a good-faith effort to ascertain that their investors are indeed accredited.
There's no requirement that I see for "seed capital" (Rule 504) investors to be accredited. Offerings that make use of the Rule 505 or Rule 506 exemptions instead, however, are limited to 35 non-accredited investors (the language of the exemption requirement, in both cases, "There are no more than or the issuer reasonably believes that there are no more than 35 purchasers of securities from the issuer in any offering under this section"; in both cases, accredited investors, and certain other special classes, are excluded from the count of purchasers.)
> If they engage in general solicitations, then the bar is higher for ascertaining this.
Well, we don't know precisely because the rule required under the JOBS Act permitting general solicitation under the Rule 506 exemption haven't been written, but it would seem likely to be so once that is permitted. But the Act itself provides that the elimination of the general solicitation prohibition requires that "all purchasers of the securities are accredited investors", and that the "rules shall require the issuer to take reasonable steps to verify that purchasers of the securities are accredited investors, using such methods as determined by the Commission." This would appear to require a higher bar than the simple "reasonable belief" test in the current exemptions.
> If I wanted to message all my users and tell them to point their investor friends towards our AngelList profile, wouldn't that be public solicitation?
I suspect so (but I'm not an expert in the application of these regulations): you aren't soliciting investment directly from just the identified users, you are asking them to solicit on your behalf from a vaguely defined group ("investor friends".)
I would suspect that an offering made only to your existing users would not be general solicitation.
Startups can talk directly to potential investors, both non-accredited and accredited investors (how many non-accredited investors can invest in them depends on which of the exemptions from registration requirements they are taking advantage of), all current registration exemptions however, prohibit general solicitation and advertising and solicitation except that certain state-law conditions can allow general solicitation and advertising for Rule 504 "seed capital" fundraising.
The update the SEC must make under the JOBS Act for general solicitation would remove the general solicitation restriction for offerings that are restricted to accredited investors where the offering firm takes certain steps to verify that any investors qualify as accredited investors. There's also a crowdfunding option that requires an SEC-registered intermediary (and has overall limits similar to the existing seed-capital option in Rule 504.)
Its not clear to me that either is necessary (or even helpful) to a company that wishes to conduct direct solicitation directed to purchasers of the company's existing offerings who are not necessarily qualified as accredited investors.