How General Solicitation Works

The JOBS Act legislation is changing the way small businesses and startups raise capital.  On September 23, Title II rulings of the JOBS Act will lift the ban on general solicitation, allowing startups to advertise they are fundraising and engage in investment crowdfunding in an open market for the first time in over 80 years.  

Private businesses were previously only able to solicit investments from investors with whom they had pre-established relationships with, making it very difficult for entrepreneurs that did not know any wealthy investors to successfully fundraise. Now with the lift on the ban of general solicitation, businesses that file in advance with the SEC their intention to generally solicit will be able to talk openly about their fundraising offerings and connect with accredited investors beyond their existing network, potentially meeting their fundraising goals more efficiently using online fundraising platforms like

It’s expected that the SEC will propose a vote on rulings on Title III, which will allow companies to raise capital in exchange for private securities offerings with non-accredited investors, sometime in the end of 2013 or early 2014.  For more information on how Title II and Title III may shape the future of equity crowdfunding, see Crowdfunder CEO Chance Barnett’s recent Forbes article.

Below, we’ll discuss what these new rulings mean for entrepreneurs and investors, and how companies can utilize general solicitation for investment crowdfunding.

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Title II – What it Means for Entrepreneurs & Investors

Once the general solicitation ban is lifted by Title II on September 23, businesses may begin utilizing general solicitation during fundraising.  By legalizing general solicitation, entrepreneurs can more openly compete for potential investors’ attention on online equity crowdfunding platforms, and employing creative advertising campaigns in print, on social media websites, blogs, and more.  

General solicitation allows businesses to build an online presence to connect with a much larger audience of accredited investors. According to a recent TechCrunch article, only 3% of the U.S.’s 8 million accredited investors are currently active in the tech startup space.  The potential to reach a much larger investment audience can ensure tech startups, and other businesses the chance to raise money more efficiently than ever before.

Entrepreneurs interested in utilizing general solicitation should be aware of all the rules and regulations associated with advertising fundraising offerings.  This especially means that they will have to rethink their fundraising approach to be sure they are in compliance with all general solicitation rules. For more information on the JOBS Act and general solicitation, see the SEC Fact Sheet.

Accredited investors can expect to enjoy greater exposure to potential investment opportunities.  By engaging in online investment crowdfunding, investors can also utilize their online presence to connect with leading businesses, and see who else is investing in companies.  As more companies enter the open market, investors can expect to see a larger variety of ideas and investment opportunities.

 Are you an Accredited Investor? You may get access to Deals on Crowdfunder today. Simply sign up and verify your accredited status.

Getting Started: How to Qualify for General Solicitation Fundraising

(Note these are proposed rules by the SEC. These proposed rules are currently being commented on, and we expect to hear back from the SEC on the final set of rules for actual implementation soon — so keep tuned. To learn more, watch our webinar with Kate Karas, Deputy General Counsel at SecondMarket.)

— First, businesses must comply with SEC regulatory processes by filing a Form D Exemption 15 days before publicly discussing their fundraising, and update the Form D 15 days after the first sale of security.

— Once the fundraising round has closed, companies must amend the Form D to notify the SEC within 30 days of finishing fundraising.

— Additionally, businesses should file documents with the SEC each time offering materials are updated.  Businesses should submit general solicitation materials to the SEC no later than the day of first use.

— Similarly, companies must provide a legal boilerplate each time a company wishes to publicly discuss or share information about their fundraising round. This information should disclose that only accredited investors are permitted to invest, and to make potential investors aware of risks associated with the investment opportunity.

— Very importantly, businesses are limited to offering securities to accredited investors, and are responsible for verifying that investors meet certain net worth or annual income requirements as detailed by the SEC prior to accepting the investment.  To see who qualifies as accredited investors, see the SEC’s Accredited Investor Fact Sheet.

Again, these are proposed rules. Once the SEC actually comes out with the final regulation and implements it, we’ll update this post to reflect that. For now, if you are interested in using General Solicitation, please seek advice from a securities lawyer to make sure you’re in compliance. 


Title III: Equity Crowdfunding with Non-Accredited Investors 

According to current regulations, businesses may not raise money with non-accredited investors.  Title III will address ways that non-accredited investors may begin investing in companies, but the SEC has yet to finalize any rulings. For more information on how Title III rulings could shape the capital market, see our CEO’s recent Forbes article here.


Risks and Rewards

The general solicitation rulings carry potential risks and rewards for both businesses and investors.  For businesses, the opportunity to connect with a larger audience of potential investors through general solicitation online may ensure more successful fundraising. Investment crowdfunding deals may help raise capital quicker, providing startups and small businesses with much-needed financial backing.  Accredited investors can expect to gain more exposure and access to a larger variety of investment opportunities.

However, the extensive rules and regulations for qualifying for general solicitation may be the downfall of the new legislation, and several crowdfunding sites and startups have shared their concerns about the qualifying process.  Any companies that violate the SEC’s general solicitation rules will be prohibited from raising funds under the 506 Exemption for one year.  

As the proposed rules indicate now, entrepreneurs are responsible for providing written fundraising materials, filing Form D Exemption forms prior to initiating a general solicitation, and verifying accredited investors, thus making the fundraising process more complicated than traditional quiet fundraising rounds.  For startups, penalties for failing to comply with these rules could be serious.   


To learn more, watch our webinar with Kate Karas, Deputy General Counsel at SecondMarket, as she lays out the process, gives her insights into JOBS Act and what you need to know to raise funding, and invest under Title II regulations. Watch it here.

Start fundraising by creating your free Crowdfunder Company Profile.


This post is for educational purposes and does not represent legal advice. To reduce Title II compliance risks and potential penalties, it’s important to consult with your lawyer prior to initiating any general solicitation fundraising.


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