A few days ago—in accordance with the JOBS Act—the SEC released new rules, regarding Crowdfunding, that allow private businesses to advertise for equity investment in their business—otherwise known as “general solicitation.”
Up to this point it has been illegal to advertise for investments in private companies. This was called “solicitation” and was forbidden by the SEC.
Not only did the old rule make it difficult for seed and early stage startups to raise money, but it also made it difficult for many of the nations “accredited” (anyone with $ 1 million in assets, or earnings of $200,000 per year) investors to find good opportunities for early stage investments.
That is why it has always been important for new startups to use advisory groups and business networks to get introduced, or referred, to “accredited” Angel investors—which is still a good idea, because the rules allowing only accredited investors to invest is still in place.
Within hours of the release of these new solicitation rules, new online services were announced to help fundraisers find and verify potential investors.
More of these verification services will undoubtedly spring up in the coming days, and If you are looking for one of these services, you can do a search online.
The same holds true for finding help to assist you in getting your advertising message to the right people. There are so many new services being introduced, it is best to simply do a search and then carefully study what is being offered.
The SEC has provided three very specific techniques that can be used to ensure that people responding to investment advertising are actually qualified investors, so make sure any service you use follows these techniques closely.
Naturally, there is some concern that these new rules do not offer enough protection for inexperienced investors. There is a greater opportunity here for dubious or fraudulent investments.
The bottom line is that with the advent of this advertising capability, both the business searching for money and the investors that respond must be extremely diligent in assessing any proposed opportunities.
Of course this is only part of the JOBS Act. The major aspect of the act (that most people are still waiting for) would allow non-millionaires to invest in private companies. But this has not yet been addressed by the SEC—and may not be for another year.
Will this new rule by the SEC make any difference in your search for investment money?