New SEC Crowd Funding Rules

(This is an update of how the new crowd funding rules that were issued in September of 2013 are doing with entrepreneurs and startups.  It should be noted that the new 506B rule can also be used by hedge funds to raise capital for the hedge funds.)BWcartoon1

U.S. securities regulators lifted restrictions on advertising of private securities sales to accredited investors in September, but only a small percentage of companies have taken them up on it.  Under the new 506B rule, companies can advertise private offerings as long as they ensure they only sell securities to accredited investors.  The new 506B rule has been mostly used by real estate investment trusts (aka REIT) so far.  Startup companies have been reluctant to take advantage.

Since September, only 1 in 10 companies, excluding investment funds, has said they would reach out to private investors using the general solicitation exemption, according to Fortune.  This should be an advantage for high tech startups–but not so far.

Technology Ventures Corporation clients should look into this approach. It would give them more bargaining power with investors, rather than dealing with ventures capital firms, which are in a better position to bargain harder for their firms.

Bruce Winchell