The Jobs Act- Unexpected Rules Proposed in addition to General Solicitation
Written for the Seattle Angel Conference.
We billed it as “The JOBS Act Consequences, New Rules for Angel Investors.” It could just have validly been called, “The Hidden Grenade in the JOBS act, propsed rules that will drive entrepreneurs and angels crazy”
Bill has summarized some of his key points and resources in his post titled #SaveRegD
on his blog here: www.wac6.com.
The proposed rules will not fufill the intent of Congress to make Angel Investing easier, but will in fact do the opposite.
disclaimer: I am not a lawyer. I am merely trying to summarize what I understood from the conversation
What you (entrepreneurs and angels) need to be aware of:
- When the SEC allowed for General Solicitation under the JOBS act, which we all celebrated last week, some proposed rules related to slipped in under the radar.
- These rules, if they stand, (they are currently in the comment period) will make operating under the 506c General Solicitation both onerous and dangerous.
- What constitutes general solicitation is still unclear, so firms may find themselves inadvertently crosswise of the new rules
- A. it is quite possible that participating in a pitch night, or an open competition could be construed as general solicitation.
- B. it is possible that having an investor or someone else discuss your company during a round could inadvertently, with or without your knowledge put you in “general solicitation” and under the auspices of the proposed Reg D rules.
- The proposed rules require that the start up firm doing general soliciation disclose the manner in which the investors are accredited, and keep verification of accreditation. This is inconvenient, and will add cost for compliance both to the Angels and the start-ups. It may scare away some angels who are very focused on privacy.
- the proposed rules also require that all firms doing general solicitation disclose the manner of solicitation, REQUIRING A FORM D filing PRIOR to solicitation for any and all communications during the open round.
- Unlike before under 506, PENALTIES will apply. This is where it gets really ONEROUS. Should the firm not file BEFORE the solicitation- use the appropriate disclaimers (how do you do that in a tweet), they have ONE chance (in a lifetime) to file within 30 days and meet the requirements. If you miss the 30 days or have used up your ONE chance to file late (either the original solicitation or amendments or final notice of closing) or predecessors have used up their one chance- no I don’t know what predecessor means with serial entrepreneurs), you are really messed up.
- Penalities include rescission rights for all investors (we had a brief discussion about how this could be used maliciously to undo a round)
- and a PROHIBITION of raising additional funds using the 506 exclusions for a full YEAR. (what start up and Angel would want to be forced to NOT raise money for a full year?
So Please TAKE ACTION! #SaveRegD
A. Comment on the proposed rules!
- Electronic comments Use the Commission’s Internet comment form (http://www.sec.gov/rules/proposed.shtml);
- Send an email to email@example.com Please include File Number S7-06-13 on the subject line;
- Use the Federal eRulemaking Portal ( http://www.regulations.gov ). Follow the instructions for submitting comments
- for all comments refer to the file number S7-06-13
B. Tweet and blog about this, pass the word around. www.saveregd.org has some great suggested content.
C. Ask your questions of the SEC about your situation or concerns at list.ly
For more information:
Here’s Bill’s post on the subject http://techcrunch.com/2013/07/19/lets-have-general-solicitation-as-congress-intended-it/
Bill’s blog is www.wac6.com, here’s his post on this topic there http://www.wac6.com/wac6/2013/07/startups-and-congressional-intent.html
and the website regarding the new regulations, with some suggested topics can be found at: www.saveregd.org
Dan Rosen has written an opposition letter here: http://blog.drosenassoc.com/?p=23
Venture beat has posted a letter here http://venturebeat.com/2010/03/26/angel-investing-chris-dodd/