As many of you may know, the SEC has lifted the 80-year-old ban on general solicitation and paved the path towards greater capital accessibility for startup companies. Starting September 23, 2013, entrepreneurs will be able to take advantage of this new provision – Rule 506(c), to be specific – and publicly advertise their offerings. For those unfamiliar with the implications, what this means is that companies will be able to tap into a broader network of investors and raise capital in a shorter amount of time by leveraging publications, social media, and general email communications to market their securities.
As part of these changing regulations, however, the SEC has proposed new rules that make the disclosure process much more rigorous, effectively hampering the capital-raising endeavors of entrepreneurs who seek to rely on general solicitation. Among other things, an arbitrary 15-day waiting period before the commencement of a general solicitation offering and the temporary requirement to submit all written general solicitation materials to the SEC are stringent rules that, if adopted, will severely compromise the efficacy of the JOBS Act and dissuade entrepreneurs from relying on this new tool.
Return on Change has submitted a comment letter to the SEC regarding these proposed rules on general solicitation. You can read the full letter below or on the SEC website.
By Sang Lee