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Reading: Cue the Confetti! Startups Can Begin Soliciting Investors on Monday
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Health Works Collective > Business > Finance > Cue the Confetti! Startups Can Begin Soliciting Investors on Monday
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Cue the Confetti! Startups Can Begin Soliciting Investors on Monday

Deanna Pogorelc
Deanna Pogorelc
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health startups

Originally published on MedCityNews.com.

health startups

Originally published on MedCityNews.com.

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It’s a mixed bag of excitement and caution as startups prepare to finally be able to tell the world when they’re looking for investment money. The ability to advertise fundraising through social media, news articles or advertisements could open up new funding opportunities, but not everyone is expecting startups to come racing out of the gates.

Monday’s official lifting of the U.S. Securities and Exchange Commission’s ban on general solicitation will for some companies remove a long-time thorn in their side. Bon’App, which developed a mobile nutrition application, is one startup that sees the change as an exciting opportunity to try a new approach to raising capital.

“We look forward to advertising our funding activities through social media, and even have designed a webpage that will direct accredited investors to our company’s profile on Fundable,” said Taylor Salinardi, the company’s director of research and data analytics, who added that the company has taken the necessary steps to begin offering securities on Monday. “Startups spend too much time and too many resources on fundraising, so we are hopeful that these new regulations will really change the landscape for us.”

Dr. Brad Weinberg, a founding partner at digital health accelerator Blueprint Health, agreed that the changes could be huge for startups, but said there still seems to be a lot of confusion around proposed changes to Regulation D filings.

“I just hope that startups don’t start getting sued when they start tweeting without knowing what they need to do,” he said in an email.

He’s referring to the laundry list of requirements companies must meet if they choose to generally solicit their fundraising, like proving to the SEC that investors have crossed a certain income or net worth threshold and qualify as “accredited investors.” Startups that choose to generally solicit under Regulation D Rule 506 must also pre-file a Form D at least 15 days before they begin soliciting and submit any documentation they plan to use in conjunction with the general solicitation to the SEC.

Because startups are constantly pitching to potential investors, and since their pitch decks change all the time, that could get messy. “These rules are built for Wall Street, not for startup companies,” said Sean Schantzen, a former securities attorney who co-founded equity crowdfunding platform Healthfundr.

The SEC has also added a steep and intimidating punishment for failure to comply with those guidelines: disqualification from fundraising under Regulation D Rule 506 for one year after failure to timely file paperwork.

What the SEC hasn’t done, though, is add clarity to what “generally soliciting” really is. The SEC gives examples, like using an advertisement or an article to solicit the sale of securities. But regulators in the past have generally turned a blind eye to lots of activities that one might think would fall under those descriptions, such as accelerator demo days.

Because the stakes have been raised and the lines remain blurry, Schantzen thinks some startups will err on the side of caution by trying to comply with the new restrictions, even if they aren’t generally soliciting. Some of the companies he’s talked to have expressed concern about making missteps that would impact their ability to raise capital in the future. “It’s possible that a lot of companies could just treat everything as general soliticiation, which is bad because that’s adding unnecessary burdens,” Schantzen said.

“This is a major change and there’s not much precedence for it. I think a lot of companies are going to take it easy and see how things play out,” he concluded. “But we’re very bullish on general solicitation as long as the people who do it do it right.”

[Image credit: Flickr user Phil Roeder]

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