SEC Lifts Advertising Ban
Today, July 10, 2013, could be a very historic day for investors in the US. The Securities and Exchange Commission (SEC) lifted its ban on advertising requirements for private placements which will allow companies to now advertise for investment opportunities. What this means for various companies looking to raise capital is that they won’t need to be so hush-hush about raising money anymore- but they still need to be smart and safe.
So, what exactly will the SEC allow now? Well, that isn’t entirely clear at this point, but the consensus among those who have been following the JOBS Act progress is that we will begin to see advertisements that will showcase investment opportunities. In my opinion, this will be very good for businesses in the US. However, it could signal disaster for some investors who have failed to invest in their financial education.
What I mean is that companies will be allowed to solicit investments on a larger scale and more publicly, and thus attract more investors into their deals. However, many companies may see this as the opportunity they need to just get money in the door without being ready for such investments. Investors who fail to properly qualify the companies could end up losing their shirts.
One major drawback to the whole ruling is that the restriction of offering private placements to non-accredited investors still stands. This means that I can’t advertise on Comcast for anyone who can fog a mirror to buy stock in my (private) company. Instead, I would still have to be careful about the message in my advertisement and seek out only accredited investors (>$1MM net worth or >$200k income). The specifics of how this will be accomplished are still vague, but I doubt that we will go back to the pre-1933 Securities Act days of general solicitation for everyone.
Look for my next post on how you, as an investor, can safeguard your investment in an offering under these new provisions.
Comments (7)
Here's some <a href="http://venturebeat.com/2013/07/10/sec-startups-can-now-advertise-the-fact-that-they-are-fundraising-but-crowdfunding-will-have-to-wait/">coverage from VentureBeat</a>.
Joshua Dorkin, over 12 years ago
I'm still doubtful that anyone will be able to put a newspaper ad out there being blatant about investment opportunities- at least in the near term. I personally wouldn't want to draw the SEC's attention to me even though the ban has been lifted. Further, just like any PPM, anyone raising money will need to basically say "You could lose everything you put into this offering. There is no guarantee that you or anyone else will make any money whatsoever. In fact, it is likely you will lose it all, so don't put everything you have at risk..." :-) Obviously that is making light of the matter, but the verbiage will be pretty clear that it's a speculative risk that comes with possibility of loss.
Jeff Barnes, over 12 years ago
To answer some of the confusion.... from the SEC "...there is no restriction on who an issuer can solicit, but an issuer faces restrictions on who is permitted to purchase its securities." http://www.sec.gov/news/press/2013/2013-124-item3.htm
Chris Martin, over 12 years ago
This is absolutely fascinating! I knew the SEC was thinking about this for a while but I didn't know it was far enough along to have a decision today. My question is, how exactly will these advertisements work? I mean where will they be located to where they will only be seen by accredited investors? I certainly know they won't be plastered on billboards or in newspapers but I still don't quite understand how they will be seen by the right people. Will a new newspaper called the "Accredited Investor Times" now pop up that will only be available to accredited investors that will advertise these private placements? LOL Any more insight would be greatly appreciated!
Account Closed, over 12 years ago
Wow, that is very interesting. A very big move indeed. I didn't think we would see something like that. Jeff, that is true, for honest firms it is great. However, I see issues coming for some investors and I don't like that.
Steven Hamilton II, over 12 years ago
So true, Josh! For honest and respectable firms, it could be a great boon, but the laws were obviously put in place for a reason, and there are still plenty of unscrupulous schemers out there. In spite of how suspicious most people are of sales professionals and people trying to raise money, I'm sure we'd still see a lot of family fortunes or life savings lost to those who would take advantage of a more lenient law. I doubt we'll ever see general solicitation come back, but the fact that we can now attempt to get to the accredited crowd without so much hassle will be beneficial.
Jeff Barnes, over 12 years ago
That's a big move . . . I doubt we'll ever see them drop restrictions on advertising to non-accredited investors, but the government never fails to surprise me.
Joshua Dorkin, over 12 years ago