The World Changes For Startups On
Davis Wright Tremaine LLP
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
• 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.
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.
• 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."
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
80 Years of
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.
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
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.
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-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
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.
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.
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.
What Else Should You
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-
You can comment at this link:
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!
For Thoughts on the
Proposed Rules See:
• Brad Feld, http://www.feld.com/wp/archives/2013/07/the-
• Naval Ravikant, http://www.sec.gov/comments/s7-06-13/s70613-
• Fred Wilson, http://www.avc.com/a_vc/2013/08/some-thoughts-
• Me, in the Wall Street Journal,
Have fun, but be careful out there.
Davis Wright Tremaine LLP