General Solicitation: Public Advertising & Private Offerings

Prior to 2012, private companies were not allowed to solicit funding and investment through public advertising. They had to rely on close, personal connections with investors – friends and family members, for example. In April 2012, however, President Obama signed the Jumpstart Our Business Startups (JOBS) Act into law, giving business entrepreneurs the freedom to raise the capital they need to help their companies succeed, in a much wider and more public forum.

Suddenly, startups and other small businesses were able to openly advertise their need for investment capital on a wide variety of platforms – from social media to newspapers, magazines and crowdfunding – all while still being seen by the Securities and Exchange Commission (SEC) to be conducting “private” offerings. The wide variety of advertising avenues open to startups today makes advertising much more affordable than in the past, when television and traditional print media were your only options. This is especially helpful for small businesses with little or no marketing budget.

What is a Private Offering?

A private offering is a way of raising the capital needed to grow your business, by selling securities to a small number of carefully chosen investors. These investors would usually be insurance companies, large banks, mutual funds and pension funds. Private offerings – also often referred to as private placement – are the opposite of a public issue, which is when securities are sold on the open market.

Fewer Regulations for Private Offerings

A private placement does not have to be registered with the SEC because it is only offered to a select few under an exemption under the securities laws. Very often, audited financial information is not necessary and there is no need for a formal prospectus although prospectuses are generally recommended because material information should be disclosed. Because these offerings are private, only a select group of investors are ever given notice of the offering and given the opportunity to invest.

Is There A Conflict?

It may seem counter-intuitive that a company may effect a “private offering” and still generally solicit and advertise, but that’s what the JOBS Act made possible. Companies can now take advantage of all the benefits of having to comply with fewer regulations when conducting private placements yet still generally solicit and advertise as if they were not conducting a private placement. It’s an amazing feature of the securities laws and savvy companies and investors are taking full advantage.

What’s the Catch?

There’s always a catch. In this case, companies that seek to generally solicit while conducting private placement offerings must take “reasonable steps” to verify that all their investors are “accredited investors.” That is to say, they can market the offering to anyone they want, but they can only accept money from investors that they have determined are accredited. The SEC, of course, gives some guidelines what steps the companies must take to verify the accredited investor status of their investors. It’s best to consult with your securities attorney to properly structure and conduct any securities offering.

Raising capital is difficult, but verifying that your investors are accredited doesn’t have to be. To learn more about verification of accredited investors, visit https://

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