General solicitation has transformed the process of fundraising in the arena of securities offerings, enabling widespread marketing of capital raises. Understanding the various types and considerations when it comes to general solicitation is crucial for companies seeking to navigate this dynamic approach to connect with potential investors.
Forms of General Solicitation
General solicitation utilizes various methods of communication, including magazines, newspapers, public websites, radio, and television. These various types of general solicitation avenues create public awareness and expand the reach of capital-raising efforts. Importantly, not every securities exemption allows the use of general solicitation.
Securities Exemptions and Considerations
Certain exemptions, including Regulation Crowdfunding, Rule 506(c), both tiers of Regulation A, and Rule 504 of Regulation D allow general solicitation. There are specific rules associated with each exemption, with Section 4(a)(2) and Rule 506(b) of Regulation D imposing notable restrictions on the use of general solicitation.
Rule 506(c) of Regulation D
The entrance of Rule 506(c) in 2013 was a milestone, initiating the use of broad public marketing to acquire investors. Issuers are required to verify investor accreditation, while also adhering to the requirements of Rules 501, 502(a), and 502(d). The Rule 506(c) exemption significantly broadens outreach.
Regulation Crowdfunding
Under Regulation Crowdfunding, general solicitation is allowed with the filing of a Form C. However, it is important to comply with specific parameters pertaining to communications. While issuers may broadly advertise their offerings, certain restrictions are in place to guide the content, ensuring a level of transparency without revealing specific terms of the offering, except through a notice that refers investors exclusively to the platform of the intermediary.
Regulation A
In the exploration phase of public offerings such as Regulation A and Regulation Crowdfunding, the utilization of materials is tied to distinct conditions as laid out in each rule. Generally, communications must state explicitly the issuer’s contemplation of issuing a security offering, while steering clear from soliciting or accepting funds for the imminent offering. The expression of interest places no obligation on the investor to invest. In addition, no details regarding the terms of the impending offering can be revealed.
Defining General Solicitation and Exemptions
General solicitation can typically include the use of publicly available websites, social media posts, and mass mailings. Situations that do not fall under general solicitation include communications with pre-existing substantive relationships and demo days. The SEC’s definitions of substantive and pre-existing relationships provide important lucidity on communication scenarios that are exempt.
Considerations and Compliance
It is important to maintain thorough record-keeping of all communications that land within the parameters of general solicitation. Adherence to SEC communication standards is of prime importance, and any misleading or false statements must be avoided. While general solicitation increases the level of exposure, it should also complement, not replace, an all-inclusive strategy for fundraising.
Understanding various nuances and complying with regulatory guidelines are essential components in successfully navigating the process of general solicitation. While it opens doors to a wider audience, careful consideration and strategic planning are crucial for a compliant and successful fundraising effort.
