One common piece of advice that securities lawyers often provide to clients is that there are three ways to raise capital by selling securities: (i) by registering the securities with the U.S. Securities and Exchange Commission (“SEC”), (ii) by utilizing an exemption from registration, or (iii) illegally. The first of these options is time consuming and expensive, particularly for startups. The third option is, well, illegal. However, the second option, utilizing an available exemption from registration, is commonly used by startups to raise seed capital and in subsequent venture rounds. An SEC-established committee has now made a recommendation that would make the capital-raising process even less burdensome to startups in certain cases.

The SEC established the Advisory Committee on Small and Emerging Companies (the “Advisory Committee”) in 2011 to seek advice on SEC rules and regulations as they relate to emerging companies, privately-held small businesses, and certain smaller publicly traded companies. On January 6, 2012, the Advisory Committee voted to adopt a recommendation to relax or modify restrictions on general solicitation and general advertising in connection with the most commonly utilized exemption from registration....

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