General solicitation for startups can be a powerful tool that allows startups to reach a wider pool of potential investors. However, not every startup that is raising capital is able to utilize general solicitation. Knowing if you can generally solicit, navigating the regulations, presenting the solicitation effectively, and devising marketing strategies are some important tasks for entrepreneurs.

Who Can Generally Solicit?

General solicitation is a method of offering securities to the general public by using publicly accessible communication methods, like social media, internet advertisements, newspaper publications, etc.

One of the regulations that permits the use of general solicitation is Rule 506(c) of Regulation D. This rule allows issuers to use general solicitation to offer and sell securities, provided all purchasers in the offering are accredited, reasonable steps are taken to verify those purchasers are accredited investors, and certain other Reg D conditions are met.

Another regulation that permits general solicitation is Regulation Crowdfunding, which enables general solicitation but also allows non-accredited investors, or everyday people, to invest nominal amounts in startups.

Both tiers of Regulation A also allow general solicitation. Startups leveraging Regulation A have the possibility to “test the waters” or solicit interest from the general public for a potential offering either before or after the filing of the offering statement. All solicitation materials must follow the final rules and after publicly filing the offering statement, need to contain a notice informing potential investors where and how the most current preliminary offering circular can be obtained.

Effective General Solicitation

No matter the regulation being raised under, startups should consider crafting compelling and transparent offering materials that resonate with potential investors. Entrepreneurs may want these materials to outline the company’s business model, market opportunity, competitive landscape, and financial projections. By effectively presenting investment opportunity while describing the market need the startup solves, startups may capture the attention of accredited investors.

Regulation A and Rule 506(c) of Regulation D

For Regulation A and Rule 506(c) of Regulation D, startups must adhere to certain guidelines to ensure compliance with securities laws and regulations. First and foremost, it’s crucial to provide accurate and complete information about the offering. This includes the nature of the securities being offered, the terms of the offering, and the risks involved.

Additionally, it’s essential to clearly communicate the eligibility criteria for potential investors. For offerings conducted under Rule 506(c), issuers must take reasonable steps to verify that all investors are accredited. This may involve collecting financial information, such as tax returns or bank statements, to substantiate an investor’s accredited status.

However, general solicitation for Regulation A and Rule 506(c) of Regulation D looks a little different than general solicitation for Regulation Crowdfunding.

Regulation Crowdfunding

In the case of generally soliciting a Regulation Crowdfunding offering, startups should be aware of the differences between offering terms and non-terms. Startups raising through regulation crowdfunding have the following two options for a single marketing communication.

• Terms Marketing: When mentioning the terms of the offering, the marketing material can only include a statement that the issuer is conducting an offering, the terms of the offering, and factual information about the legal identity and business location of the issuer[1].
• Non-Terms Marketing: Marketing communications that do not mention offering terms can be broader and contain additional marketing language, but the marketing material cannot falsely lead investors to untrue conclusions or contain guarantees about the performance or growth potential of the business.

The SEC has created the following list of offering terms for a startup seeking to generally solicit while raising under Regulation Crowdfunding[2]. When marketing a Regulation Crowdfunding opportunity, mentioning anything on the following list constitutes the marketing communication as Terms Marketing, as mentioned above.

• The amount of securities offered (how much money a company is raising/how many shares they are offering)
• The nature of the securities (is the startup offering crowd note, equity, or debt
• The price of the securities (the minimum investment amount, commonly $100)
• The closing date of the offering
• The planned use of proceeds
• A startup’s progress toward meeting its funding target

Startups utilizing Regulation Crowdfunding should consider whether or not their marketing material contains offering terms and make adjustments as necessary to adhere to SEC guidelines.

Marketing Strategies for Startups

Effective marketing can be important to the success of a general solicitation campaign. Startups can employ a variety of strategies to amplify their outreach and attract potential investors. One such strategy is to leverage digital marketing channels, including social media posts, social media ads, content marketing, and search engine optimization (SEO). By establishing a strong online presence, startups may be able to enhance their visibility and engage with a broader audience of investors that resonates with the startup.

Additionally, informational webinars and virtual events can serve as powerful tools for educating potential investors and showcasing the value proposition of the offering. These interactive sessions could provide startups with a platform to convey their vision, address investor inquiries, and establish rapport with prospective backers.

Networking within relevant industry events, conferences, and investor summits can also yield valuable connections and opportunities for startups to showcase their offerings. Building relationships with angel investor groups, venture capital firms, and other investment communities can expand a startup’s access to accredited investors and foster strategic partnerships.

Final Thoughts

General solicitation offers startups a compelling avenue to raise capital and engage with a diverse pool of potential investors. By understanding the regulations that govern its use, presenting solicitation effectively, and implementing strategic marketing initiatives, startups can help their fundraising efforts and potentially gain new customers and investors.

Want to learn more about tips for startups raising capital? Check out the following MicroVentures blogs to learn more:

• The Art of Bootstrapping: When to Pursue External Funding
• Less is More: Compelling Pitch Deck Design
• Navigating Equity Allocation: How Much Should I Give Up?
• A Startup Guide: Preparing for Due Diligence
• Supporting Growth: The Role of Accelerators and Incubators

Is your startup looking to raise capital? Apply today to raise capital with MicroVentures!

 

[1] https://www.sec.gov/info/smallbus/secg/rccomplianceguide-051316#4

[2] https://www.sec.gov/corpfin/facilitating-capital-formation-secg

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The information presented here is for general informational purposes only and is not intended to be, nor should it be construed or used as, comprehensive offering documentation for any security, investment, tax or legal advice, a recommendation, or an offer to sell, or a solicitation of an offer to buy, an interest, directly or indirectly, in any company. Investing in both early-stage and later-stage companies carries a high degree of risk. A loss of an investor’s entire investment is possible, and no profit may be realized. Investors should be aware that these types of investments are illiquid and should anticipate holding until an exit occurs.