Private Equity Solicitation Rules Proposed by SEC

While not specifically related to crowdfunding, Title II of the JOBS Act (of which crowdfunding was Title III) is the big brother of crowdfunding.  Reg D is how private equity works right now.  Title II permits the general solicitation for investments in Reg D offerings, which should make these much more prevalent.  In plain English, prior to these rules being adopted, those looking to raise money through Reg D offerings (which are by far the most common type of private equity money) could only ask those investors with which they (or their representative) had a prior relationship.  As soon as final rules are adopted, issuers can solicit from anyone, provided that they take reasonable steps to ensure that the investors are accredited (see rules for accreditation here:  The proposed rules were approved by the SEC on Wednesday.  Find them here:  69 pages of rules that set up a “check the box” process if you want to generally solicit.  The big issue has been the extent to which issuers have to “ensure” that investors are accredited.  It looks like there won’t be a safe harbour for that – which some people may not like – but the standard will still continue to be “reasonable belief,” which most people will love.  Good news is that the SEC played with kid gloves on these rules – maybe they’ll do the same with crowdfunding.


Where crowdfunding began…

A group called the “Startup Exemption” were the ones who went to Washington to lobby Congress and the President for securities crowdfunding.  They put together a blog post called “Crowdfunding 101” which is definitely worth a read to get an idea of their thought process as they were passing this legislation through.

Remember – this is old information – but it is THE HISTORY of crowdfunding from the founders, so I think it is incredibly insightful.

A brief description of crowdfunding (discussion format)

I am a small business attorney in Lakeland, Florida.  Far away from Silicon Valley.  I see the importance of crowdfunding on a daily basis.  Businesses need funds.  Banks need collateral that businesses don’t have.  Crowdfunding is a way for small businesses to raise money from the crowd – everyone.  To get that money, the business (issuer) must prove its case to the person giving it money (investor).  Prior to January 1, 2013, the United States did not permit securities crowdfunding, that is the investment by the crowd in exchange for a promissory note (debt) or stock/ownership (equity).  The JOBS Act, passed in April, changed that.  Find out how (the Real Story) in my interview with Mark Wallace on Seeking Alpha: