The World Changes For Startups On
September 23rd
Joe Wallin
Davis Wright Tremaine LLP
joewallin@dwt.com
@joewallin
(206) 7...
Why Does The World
Change on September 23rd?
• Because on that date, thanks to the JOBS Act, it
will become legal for star...
What is “General Solicitation”
and “General Advertising”?
The SEC doesn’t define the terms but gives the following example...
• The SEC has interpreted general solicitation to
include posting anything on the Internet.
• "The placing of the offering...
The SEC has also said that a general solicitation is
not present when there is a "pre-existing,
substantive relationship b...
80 Years of
Prohibition, Gone
For 80 years companies have not been able to
advertise that they were raising money. They
co...
For 80 years, startups have not been able to
generally solicit or generally advertise.
Instead, for 80 years startups have...
Now, on September 23rd, a startup will be able to
put on its web site that it is raising money. It will
be able to respond...
The Drawbacks?
If a startup generally advertises or generally solicits
its offering, then:
1. The startup will only be able to take money from
“accredited investors.” There is no allowance for up to 35
non-accredi...
2. The startup will have to take additional steps to verify
the accredited investor status of its investors, and keep
reco...
3. The startup will have to make a note on its Form D
that it generally solicited. The Form D is the form startups
have to...
Should You Rush In?
• Never rush when it comes to a securities offering. Consult your
legal counsel, your mentors, and you...
What Else Should You
Do?
Comment to the SEC on its proposed rules. You
may or not be aware, but the SEC’s proposed rules
o...
You can comment at this link:
http://www.sec.gov/cgi-bin/ruling-
comments?ruling=s70613&rule_path=/comments/s
7-06-13&file...
If you want to read some of the comments of some
of the folks who have spoken out against the
proposed rules, I’ve put the...
For Thoughts on the
Proposed Rules See:
• Brad Feld, http://www.feld.com/wp/archives/2013/07/the-
proposed-sec-rules-under...
Conclusion
Have fun, but be careful out there.
Joe Wallin
Davis Wright Tremaine LLP
joewallin@dwt.com
@joewallin
(206) 757...
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The World Changes for Startups on September 23rd

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The JOBS Act Rules allowing startups to generally solicit their private securities offerings under Rule 506(c) of Regulation D go effective September 23rd.

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The World Changes for Startups on September 23rd

  1. 1. The World Changes For Startups On September 23rd Joe Wallin Davis Wright Tremaine LLP joewallin@dwt.com @joewallin (206) 757-8184
  2. 2. Why Does The World Change on September 23rd? • Because on that date, thanks to the JOBS Act, it will become legal for startups to “generally solicit” and “generally advertise” their securities offerings. • Startups haven’t been able to “generally solicit” or “generally advertise” their offerings since, well, since before we were all born. • This is a big deal.
  3. 3. What is “General Solicitation” and “General Advertising”? The SEC doesn’t define the terms but gives the following examples: 1. Any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio; and 2. Any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.
  4. 4. • The SEC has interpreted general solicitation to include posting anything on the Internet. • "The placing of the offering materials on the Internet would not be consistent with the prohibition against general solicitation or advertising in Rule 502(c) of Regulation D."
  5. 5. The SEC has also said that a general solicitation is not present when there is a "pre-existing, substantive relationship between" a startup and the persons whom it is talking to about selling its shares.
  6. 6. 80 Years of Prohibition, Gone For 80 years companies have not been able to advertise that they were raising money. They couldn’t run ads on TV. Put up billboards on the side of the road. Respond to a reporter inquiry, “Are you raising money?” Or, even worse, even mention that they were raising money on Internet.
  7. 7. For 80 years, startups have not been able to generally solicit or generally advertise. Instead, for 80 years startups have had to work their networks, person to person, sticking to “pre- existing substantive relationships” (as the SEC puts it).
  8. 8. Now, on September 23rd, a startup will be able to put on its web site that it is raising money. It will be able to respond to reporter inquiries that, yes, it is raising money. It will be able to stand up at trade shows or other industry events and say, yes, it is raising money. All without fear that it is blowing itself up for violating the securities laws.
  9. 9. The Drawbacks? If a startup generally advertises or generally solicits its offering, then:
  10. 10. 1. The startup will only be able to take money from “accredited investors.” There is no allowance for up to 35 non-accredited investors (although that allowance in non- generally soliciting offerings isn’t really isn’t very helpful in any event.) “Accredited investor” means someone with income at least $200,000 a year for the last two years, with the expectation of the same in the year of investment, or $300,000 with spouse; or $1M net worth excluding primary residence.
  11. 11. 2. The startup will have to take additional steps to verify the accredited investor status of its investors, and keep records that it did so. This means reviewing Forms W-2, 1099s, etc. This is potentially a touchy issue for your angels. Angel investor may balk at giving this information to startups in a garage somewhere, regardless of the fact that so many great companies have begun in garages.
  12. 12. 3. The startup will have to make a note on its Form D that it generally solicited. The Form D is the form startups have to file with the SEC and state securities regulators announcing that they have raised money.
  13. 13. Should You Rush In? • Never rush when it comes to a securities offering. Consult your legal counsel, your mentors, and your advisors. Be careful. The drawbacks are real. If you can raise money without generally soliciting, it will be easier because you won’t have to review investor W-2s, or other investor financial data. So, if you can raise money without generally soliciting you should. • But, Congress did us a big favor in the JOBS Act, and you just might want to take advantage of it.
  14. 14. What Else Should You Do? Comment to the SEC on its proposed rules. You may or not be aware, but the SEC’s proposed rules on general solicitation are really onerous. An all star cast of none other than Steve Blank, Brad Feld, Naval Ravikant, and Fred Wilson, as well as luminaries, have come out heavily against them. You can read all of the comments submitted to the SEC at this link: http://www.sec.gov/comments/s7- 06-13/s70613.shtml
  15. 15. You can comment at this link: http://www.sec.gov/cgi-bin/ruling- comments?ruling=s70613&rule_path=/comments/s 7-06-13&file_num=S7-06- 13&action=Show_Form&title=Amendments%20to %20Regulation%20D,%20Form%20D%20and%20 Rule%20156%20under%20the%20Securities%20A ct
  16. 16. If you want to read some of the comments of some of the folks who have spoken out against the proposed rules, I’ve put the links below. You have until September 23rd to comment. I encourage you to do so!
  17. 17. For Thoughts on the Proposed Rules See: • Brad Feld, http://www.feld.com/wp/archives/2013/07/the- proposed-sec-rules-undermine-the-goal-of-the-jobs-act.html • Naval Ravikant, http://www.sec.gov/comments/s7-06-13/s70613- 37.pdf • Fred Wilson, http://www.avc.com/a_vc/2013/08/some-thoughts- on-the-secs-rulemaking-on-general-solicitation.html • Angel.co/sec • Me, in the Wall Street Journal, http://blogs.wsj.com/accelerators/2013/07/12/weekend-read-time- to-advertise-your-private-offering-not-so-fast/
  18. 18. Conclusion Have fun, but be careful out there. Joe Wallin Davis Wright Tremaine LLP joewallin@dwt.com @joewallin (206) 757-8184

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