You’ve done your research, you’ve built up an engaged audience for your startup, and now it’s time for you to gear up for an equity crowdfunding campaign for your business. A key element of any successful raise is having a solid marketing strategy in place. But before you begin planning your media blitz, it’s critical that you understand and adhere to SEC rules surrounding marketing and advertising communications for Regulation Crowdfunding offerings.
The Role of Platforms
Before diving into what you can and cannot say, it’s important to understand the role equity crowdfunding platforms play in all of this, which starts with Title III of the JOBS Act. Essentially, lawmakers wanted to make sure that all potential investors had easy access to the same information regarding a given offering. As part of Title III, they determined that there needed to be one central location where potential investors could access all information for an offering, which is where funding platforms came into play.
Because of this, most communications are limited to the platform the offering is being hosted on. And as long as the information is not misleading, the issuer can include as much information as they’d like.
In addition to housing information about the offering, all platforms are required to include a discussion or Q&A section for each offering, where potential investors can publicly ask the issuer questions about the offering.
Now that we’ve laid out some context, let’s get into some best practices for marketing your regulation crowdfunding raise.
What Can I Say Before Launching?
In short? Nothing. SEC rules are very clear here, that issuers cannot make any kind of public or private communication about their upcoming raise. No hints, no social media posts, no countdowns, no sneak peeks. The only time you can publicly communicate about your offering is once it has gone live on the platform.
Another thing to be wary of is “conditioning the market.” Basically, this means that your marketing efforts leading up to your raise should not drastically increase. You can (and should) continue to advertise and market your business as usual, and if you do plan to change your marketing strategy in any way, we suggest having a chat with your legal counsel to make sure you’re not unwittingly breaking any SEC rules.
What Can I Say After Launching?
Once, and only once, your offering is live, you can begin to promote your raise. In doing so, you should know that the SEC places communications made outside of the crowdfunding platform into two buckets:
- Terms Communication: limited communications that only contain specific facts about the offering, also known as “tombstone communications”
- Non-Terms Communication: broader communications that do not contain the terms of the offering
Example of a Terms Communication Post
“We’re making a Regulation CF offering of up to 5000 shares of common stock at MicroVentures.com. You can become a part of our team by investing at $10 per share. This offering ends on February 28, 2019, so head to our offering page to learn more. [Link to offering page]”
Example of a Non-Terms Communication Post
“Become a part of our story by investing in our equity crowdfunding campaign. We’re currently raising funds to grow our business on the MicroVentures platform, and your investment will help us achieve our goals. [Link to offering page]”
Both types of communications are permitted; however, they cannot be mixed or combined in a single communication. Generally, most marketing efforts will fall into the non-terms category.
A few things to note…
- All communications regarding the offering must adhere to securities regulations’ antifraud provisions. All statements and claims should be fair and balanced, and don’t include potentially misleading information. As a general rule of thumb, you shouldn’t say it if you cannot back it up with evidence.
- You can (and should) include a link to your offering page but linking to other third-party content over which you have no control can be problematic. For instance, a glowing online review of an up-and-coming brunch spot might also include information about their common stock offering that ends next Tuesday. The journalist isn’t beholden to SEC regulations, but the brunch spot is. Linking to that article would violate crowdfunding statutes.
Communicating with Investors
As we discussed earlier, every offering page must include a section where potential investors can ask questions of the issuer. The rationale behind this, again, is that all potential investors have access to the same information. This means that, should a potential investor reach out privately with a question about the offering, issuers have two options:
- Direct them to the discussion section of the offering page
- Answer their question, then transcribe their question and the answer to the discussion section
Oftentimes their question has already been asked and answered in the discussion section, so this also cuts down on having to repeatedly relay the same information.
The same rules around terms and non-terms communication that apply to written and verbal communication also apply to images and videos. Images and videos may be included with terms communication, but they must only depict factual things, such as what the company does or how a product is created. They must also not be misleading; for example, if an image or video depicts a product that has not been created yet, that must be clearly indicated.
Press releases are permitted, but they are limited in how much information they can offer, as they as subject to the same rules surrounding terms and non-terms communication.
Interviews are tricky, because even if the issuer only offers terms or non-terms information, the journalist is likely to add in additional details that do not comply with SEC rules. The only way to get around this is to have the journalist agree to your approval prior to publishing.
While these rules may seem tedious or confusing, complying with them is essential if you want to be able to raise money via regulation crowdfunding in the future. And if you have questions or doubts about something? Always ask your legal counsel first – you’ll save yourself headaches down the line.
The information above is intended for informational purposes only and is not meant to serve as legal advice on Regulation Crowdfunding. As regulations surrounding Regulation Crowdfunding evolve, this information here is subject to change. With respect to any of the legal matters discussed here, please consult with your legal counsel.