Thanks to a recent decision by the Securities and Exchange Commission, folks looking to raise money for private offerings can openly advertise the deal. The rule change opens a new pool of investors to start ups and venture capitalists. In the past, a company could raise funds either by going public or through a private offering. The IPO route brought with it intense regulation, which scared off a lot of folks. And the private offering model meant that many potential investors never heard about the deal.
This new rule should allow the word to get out to a whole new audience. There are still some restrictions to ensure that only accredited investors – generally, individuals with more than $1 million in liquid net worth – pony up the money. To help the SEC police things, fundraisers have to file a Form D with the SEC at least 15 days before they begin general solicitation, and amend that Form D to state that they’re done soliciting within 30 days of finishing.
The SEC, however, has not given any final word on crowdfunding. That democratic approach, which could open up even more avenues for capital infusion still awaits final SEC guidance. This most recent action, however, seems like a step in that direction.