Raising money for your business? Shout it from the rooftops. For the first time, it’s allowed.
The Securities and Exchange Commission today voted four to one that it will overturn the ban on publicly advertising that your company is raising money, what’s called “general solicitation.” By voting to lift the ban on general solicitation, the Commission has essentially made it legal for private companies to tell anyone that they are raising money, which was previously illegal.
“Startups and other private companies have been handcuffed from reaching a broader audience,” says Alex Mittal, chief executive and co-founder of FundersClub, an online venture capital platform. “If you think of private company stock as a product of a company, what seller of a company isn’t allowed to talk about their own product, their own goods?”
Before the change in law, it was illegal for an entrepreneur to tell a newspaper reporter that his or her company was seeking funding and for that information to be included in a story, says Mittal. Now, a founder of a company can indicate on their Facebook page, Twitter feed and any other personal networks that their company is raising money.
Today’s lifting of the ban on general solicitation, item 201(a), was one part of a handful of measures included in the Jumpstart Our Business Startups Act, known as the JOBS Act, which was signed into law in April last year. The legislation, most famous for its crowdfunding provision, which will allow companies to sell equity in their company to unaccredited investors, is a compendium of measures aimed at increasing access to capital for entrepreneurs.
The lift on the ban originally passed over a year ago as part of the JOBS Act, but the SEC was required to vote on and finalize rules for implementing the measure. It typically takes 10 days or so for the vote to reach public record. Then the Commission has another 60 days to write detailed rules for the change. It is expected that the new law will be implemented in mid-September, says Mittal.