Today, the U.S. Securities Exchange Commission’s final rules allowing general solicitation went into effect. In the fundraising context, general solicitation means publicly advertising the fact that you’re raising money. Previously, this was a big no-no.
The Way it Was
The most important securities regulations for startups is Regulation D, or Reg D. In a nutshell, Reg D provides exemptions from the general rule that all securities have to be registered with the SEC. Registration is a complex and expensive process that would in itself sink many small companies, so Reg D is a big deal. Blowing Reg D exemptions keeps securities lawyers up at night.
The most useful of the exemptions Reg D provides is Rule 506, which doesn’t have a dollar-amount cap. However, Rule 506 has two catches. First, companies can only raise funds from an unlimited number of accredited investors plus up to 35 non-accredited investors. For individuals, an accredited investor is…
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