CONTRIBUTED BY Trent Dykes and Nathan Luce

Earlier today, the Securities and Exchange Commission (SEC) took an important step in making securities-based crowdfunding a reality for many small companies with the release of its proposed rules governing crowdfunding. The proposed rules, called “Regulation Crowdfunding,” were drafted in connection with Title III of the JOBS Act. Whereas traditional crowdfunding involves a company offering things like advanced product or information releases, premium services or the ability to contribute to a given cause in exchange for an investment, Regulation Crowdfunding would allow those same companies to issue actual securities (i.e., debt or equity) in exchange for investments—a dramatic shift from what has become fairly common practice on websites such as Kickstarter or Microryza over the past few years.

The SEC’s Regulation Crowdfunding proposal would implement rules governing the offer and sale of securities under new Section 4(a)(6) of the Securities Act of 1933 (Section 4(a)(6)). The proposal also provides a framework for the regulation of registered funding portals and brokers, whom issuers must use as intermediaries in their crowdfunding efforts pursuant to Section 4(a)(6). In addition, the proposal would exempt securities sold pursuant to Section 4(a)(6) from the registration requirements of Section 12(g) of the Securities Exchange Act of 1934.
Continue Reading Overview of Proposed SEC Crowdfunding Rules

Ban on General Solicitation Lifted with Respect to Accredited Investors

Today, the Securities and Exchange Commission (SEC) adopted new rules to lift the ban on general solicitation of funds or general advertising for certain private offerings of securities.  Once the rules become effective (60 days after publication in the Federal Register), provided that certain requirements are met, startups, fund managers and other companies will be able to utilize general advertising to offer to sell stock to “accredited investors” as defined in Rule 501 of Regulation D of the Securities Act of 1933 (typically wealthy individuals with liquid net worth in excess of $1 million or investment funds; see our discussion of the recently revised accredited investor standards here as well as information on the SEC’s site 

Continue Reading SEC Issues Rules Lifting Ban on General Solicitation in Unregistered Fundraising

The SEC yesterday proposed rules to permit general solicitation and general advertising in Rule 506 and Rule 144A offerings. A main requirement is that the issuer “takes reasonable steps to verify” that the purchasers are accredited investors. The model the SEC has proposed would neither mandate specific verification steps nor assure issuers and investors that adequate steps have been taken. The model will likely require issuers to obtain reliable third party information most of the time, rather than relying on questionnaires, contractual representations, or similar confirmations from a purchaser.

Continue Reading SEC Proposes General Solicitation Rules

Megan Muir

The Jumpstart Our Business Startups Act (the JOBS Act), enacted in April this year, makes a variety of significant changes to securities laws, some of which relate to early-stage entrepreneurs, startup companies and venture capitalists concerned about fund raising with respect to their portfolio companies.

In this article, I address provisions of the JOBS Act most applicable to startup companies and venture capitalists that fund them. In this piece, I will not be covering other changes in the Act such as broker/dealer regulations, “Reg A+”, or the changes to research reporting and analyst rules.

IPO On-Ramp

The JOBS Act contains various changes to the requirements for a company listing its shares in its initial public offering, referred to as the IPO “on-ramp” provisions. These changes should assist emerging companies as they consider an IPO as a strategy to raise funds for growth while creating liquidity for their venture capital and other investors. The key IPO on-ramp provisions, which went into effect immediately in April, are identified below.

Continue Reading JOBS Act: What Matters Most for Startups and VCs

Peter Astiz.jpgIn an interview for NACD Directorship magazine entitled Noteworthy Legal Issues for Pre-IPO and Small-Cap Directors, DLA Piper partner and colleague Peter M. Astiz, co-head of our Global Technology Sector Practice, provided updated information concerning director fiduciary duties, voting and control issues raised by FaceBook’s structure, the JOBS Act and regulation under Sarbanes-Oxley.  NACD Directorship magazine is published by the National Association of Corporate Directors. The article can be found here.
Continue Reading Director Concerns in Pre-IPO and Small-Cap Companies

In today’s age of social media success stories, there is something superficially interesting about crowdfunding as a high-level idea. There has certainly been no shortage of attention to crowdfunding in the press and from business people. But in looking at the new JOBS Act exemption for crowdfunding, I see lots of reasons to avoid using it. While this list could be expanded – and will need to be revised as the SEC adopts rules to implement the new exemption – to get things started I offer up these ten reasons to avoid crowdfunding.

Continue Reading Top 10 Reasons to Avoid Crowdfunding

Megan Muir

Join us for a complimentary webinar regarding the Jumpstart Our Business Startups Act (the “JOBS Act”).  This one-hour webinar for venture capital investors, private equity firms, startup entrepreneurs, late stage companies and management of portfolio companies will cover the following provisions of the Act:

The IPO “on-ramp”

  • Reduced initial and ongoing reporting requirements for “emerging growth companies”
  • Confidentiality of SEC registration statements
  • Easing of restrictions on issuance of research reports by participating underwriters

Private offerings

  • Relaxation of prohibition on general solicitation in private offerings to

Continue Reading How the JOBS Act Eases Access to Capital – Webinar April 18th

On March 27th, the US House of Representatives overwhelmingly passed the Jumpstart Our Business Startups Act (JOBS Act) with the Senate’s recent amendments. Next stop is the President’s desk for what is anticipated to be speedy signature. The legislation is intended to improve the ability of emerging growth companies to access capital by relaxing certain rules in private offerings as well as in the period following a company’s initial public offering.  Read the details in this summary by our colleagues Christopher C. Paci, Edward Batts, Ann Lawrence,
Continue Reading JOBS Act Passes House – to President Next

Megan Muir

Yesterday (March 22), the Senate passed the Jumpstart Our Business Startups Act (JOBS Act), which could make it easier for startups and other small businesses to raise capital.  The bill now goes back to the House, which passed a similar bill two weeks ago, for the reconciliation process, which may occur as early as next week.  Some of the proposed changes to federal securities laws in the bill would:

  • Exempt, for up to five years, “emerging growth companies” (those with under $1 billion in annual gross

Continue Reading Senate Passes JOBS Act