If you’re trying to access capital, you’re in luck because the process of attracting potential investors just got a lot easier. As of September 23, Title II of the JOBS Act lifted a ban on advertising to investors that has been in place since the Great Depression. This means that all methods of attracting investors through advertisement are fair game—mass communication, signage, you name it.
In technical terms, advertising to investors is called general solicitation and general advertising, which is not defined by the Securities Exchange Commission, but is characterized by a list of nonexclusive examples including advertising in newspapers and on the Internet. Businesses must declare they advertised to attract investors within 15 days of receiving their first investment under the new rules.
Though Title II has certainly loosened the restrictive ban, there are still certain guidelines small businesses and startups must abide by. These guidelines are included in the Rule 506 exemption, which the SEC previously employed and has now expanded to include everyone under Title II. Under this exemption, companies are allowed to raise an unlimited amount of capital using unrestricted means; however, they must deal with accredited investors.
Accredited investors must meet certain income and net worth guidelines as well as be informed participants that have knowledge of the potential benefits and risks of their venture. So in short, a business can advertise to anyone, but they must then take steps to screen potential investors to avoid future issues.
This is the first of many major moves the JOBS Act is expected to make to facilitate growth of small businesses and launch startups in the country. Now it’s up to you to come up with the most enticing advertisement to attract potential investors…better start brainstorming!
For more information about Title II, read this SEC fact sheet.