General Solicitation in the US is history

Posted by The Eureeca Team on Jul 16, 2013 8:39:00 AM

On the morrow of July 10, 2013, the SEC in the United States voted 4 to 1 in favor of implementing section 201(a) (Title II) of the JOBS Act, which lifts the ban on general solicitation. “General Solicitation” or “general advertising” are, as defined by Rule 502(c) of the Securities and Exchange Commission (SEC),

“1) any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media broadcast over television and radio; and

2) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.”

An 80 year-long ban brought on by the follies of the post hysterical booming twenties’ Great Depression prohibited companies from disclosing information to the public that they were in need of financing. As you can imagine, this could get infuriating for any legitimate SMEs looking to raise money for their businesses.

The SEC also proposed rules which would require companies to submit their advertising literature to them(which would not be issued to the public) and essentially notify the SEC before doing any advertising.

What does the SEC’s vote have to do with me?

The 4 to 1 vote permits startups, venture capitalists, and hedge funds to openly advertise that they’re raising money to accredited investors. Accredited investors are those who have over a million dollars in liquid assets (i.e not locked up in property) and/or work in the finance industry. While general solicitation may pose an added risk of these investors being misled, accredited investors usually have the capital or financial know-how on how to make sound investments. It should also make it increasingly easier for companies to raise capital to start or continue financing a business. Previously companies could only raise money privately, behind closed doors, through friends, family, and within a limited network of investors. But now with SEC voting in favour of general solicitation (even though you need accredited), crowdinvesting is one step closer to becoming legal across the pond, and that is reason to celebrate.

The ability to fund SMEs will spawn a new generation of business growth and create jobs. The mere fact that 90% of hires take place after a company acquires capital highlights the need for SME funding, especially in a post recession market. Crowdfunding and crowdinvesting is about to take a turn for the better!