Startup Spokane recently hosted the 2nd annual Triangle Venture Expo featuring seven emerging companies from our region. The event was a great success, but some entrepreneurs questioned whether or not it was OK to tell the audience they were raising capital for their company. Startup Spokane generally cautions entrepreneurs not to announce to the audience that they are raising capital or seeking investors unless the entrepreneur has made an intentional decision to comply with the securities laws that permit general solicitation of the public. Here are three things an entrepreneur should be thinking about when preparing a presentation for a pitch clinic or demo day type of event:
- Telling the public you are raising money for your startup is generally prohibited.
Unless you are conducting a registered public offering, complying with crowdfunding rules or taking steps to ensure only accredited investors invest in your company, then you may be violating the “general solicitation” rules if you inform the public you are seeking money for your company. General solicitation occurs when interstate communication tools, including the telephone, email and internet, are used to advertise or communicate with the public about an investment opportunity. It can also occur if an announcement is made at a public event.
- Know your exemption.
Rules permitting general solicitation of the public have been enacted in recent years, including state and federal crowdfunding rules. The rules that permit general solicitation are stricter and more burdensome for a company to comply with. A company may be required to comply with dollar limitations and disclosure requirements, in the case of crowdfunding, or take steps to ensure only accredited investors participate in an offering. The most popular offering exemption for funding startups continues to be one that permits a company to raise an unlimited amount of money from an unlimited number of accredited investors, but does not permit general solicitation of the public.
- Know your audience.
Any seminar or meeting, including a pitch clinic, that has been publicly advertised or to which the public has been invited is generally deemed to be a public event. If you know members of the public will be attending your event, then unless you are willing to comply with the heightened compliance requirements for generally solicited offerings, you should focus your presentation on the company’s business and not its capital needs.
For any questions or more information on these or related matters, please contact Rick Repp at (509) 624-5265; email@example.com
This article is for information purposes only and is not intended to convey or constitute legal advice.
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