In the last couple of weeks I’ve received the same two questions from numerous people:
- Can I start using my Twitter, Facebook, or LinkedIn account (etc.) to raise funds for my company?
- Can I start crowdfunding my company?
The answer to both questions is a resounding NO (at least not yet).
The SEC still needs to amend its current rules and issue new rules to put these provisions of the JOBS Act into action.
The JOBS Act removes the prohibition on general solicitation and advertising in offerings made under Rule 506 solely to accredited investors (subject to certain limitations). Recall that Rule 506 is a safe harbor exemption from registration that most startups use to raise capital. Under Rule 506, a startup can solicit accredited investors and there is no limit to the amount of capital that can be raised. But, a big limitation under the current version of Rule 506 is that startups can’t generally solicit or advertise their securities. Section 201(c) of the JOBS Act requires the SEC to amend the current Rule 506 no later than 90 days after the enactment of the JOBS Act. While we wait for the SEC to act, the current rules remain in effect during the interim.
The JOBS Act also exempts from registration with the SEC certain crowdfunding activities. Section 302(c) of the JOBS Act requires the SEC to issue new rules to carry out the crowdfunding exemption within 270 days after the enactment of the JOBS Act. Before then, there is no crowdfunding exemption available for startups.
This means companies trying to raise funds during the interim periods should proceed as they would have before the JOBS Act passed and comply with the provisions and safe harbors under the current rules promulgated by the SEC.
So startups should not get too excited yet. It remains to be seen how the SEC will implement the JOBS Act (see some of my concerns in a previous post). Let’s hope they keep things simple for startups and not undermine the spirit of the JOBS Act.