Title II and Title IV of the JOBS Act created two different forms of investment crowdfunding. Title II allows issuers to “generally solicit” or advertise securities sold under this exemption. The catch is that only accredited investors may purchase these securities. Title IV of the JOBS Act, commonly called Reg A+, allows issuers to raise up to $50 million but you have to provided a good amount of disclosure to the SEC. Issuers may advertise and promote at will. Title III or Reg CF is a bit different though. This new securities exemption allows issuers to raise up to $1 million BUT promotion is hobbled a bit as there are limitations as to what a company may say or not. If you cross the SEC rule line you may blow-up the exemption and disqualify the company from raising capital under Reg CF. Not a good thing.
Sara Hanks, CEO and founder of CrowdCheck, has published a document to help guide issuers in their Reg CF journey. Hanks is an attorney and previously worked at the SEC so she has a good understanding as to how the regulatory environment operates. She is also co-chair of the SEC Advisory Committee on Small and Emerging Companies. You can guarantee the SEC has reviewed her memo on Reg CF communication.
Every crowdfunding platform Crowdfund Insider deals with uses this document as a definitive guide to coach issuers on communication so they do not transgress the rules. The document, embedded below, outlines communications companies may do prior to and during a Reg CF offer. While talking about the operations of a business is OK – saying too much about the offer may imperil it in the eyes of the SEC. Yes, we know this is counterintuitive. Transparency is paramount for investor protection and curtailing communication in such an obtuse manner is not conducive to transparency. The restrictions “don’t reflect the way people communicate these days” but the legacy of our analog past lingers on… So as it stands now, these are the rules.
PS – We would like to thank Crowdcheck for providing this document.