Why Startups Are Stepping on the Brakes Despite SEC Giving Green Light to General Solicitation

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In September 2013, the SEC significantly relaxed restrictions that had been in place for over 80 years on companies’ ability to advertise for investors. The old rule, generally referred to as the “ban on general solicitation,” had been a central component of U.S. securities laws since the Great Depression. Before the ban went in place, it was not uncommon to see public advertisements to buy the next “can’t miss” stock.

Increasingly in recent years, particularly with the startup boom, entrepreneurs felt as though their hands were tied with regard to raising money. If only they could advertise for investors, the vast pool of capital that was previously out-of-reach would come knocking at their doors. When the SEC announced it was considering eliminating the ban, the excitement in the business community was palpable. Yet today, more than six months after the ban was finally lifted, companies remain extremely skittish to test out the relaxed rules. To understand the hesitation, a little background on the new regulatory environment is needed....

Originally published on Under30CEO on May 27, 2014.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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