SEC Provides Helpful Clarifications of “General Solicitation” - Or Guidance on Keeping Deals Private

By: Marianne Hudson, ACA Executive Director

The Securities and Exchange Commission has recently provided three written statements that provide clarification and/or insight into their thinking on different aspects of general solicitation in Regulation D offerings.  I encourage angel investors and entrepreneurs alike to read these SEC materials and discuss them with your legal counsel.

Two of the writings are “Compliance and Disclosure Interpretations” (kind of FAQs) published on August 6 and the other is a “no action letter” written on August 3.  Let’s take a look at each, with my quick interpretation and then the actual language from the SEC:

Angel Groups and Private Offerings

Angel groups can provide an environment of a pre-existing, substantive relationship between issuers and investors, addressing a requirement for private offerings.  Sophisticated angels can connect issuing entrepreneurs with other sophisticated investors in their network.

Demo Days and General Solicitation

If an entrepreneur presents at a demo day and does not offer a security, that issuer has not made a general solicitation.  So it is important to not include financial information in the presentation, answers to public questions or in printed materials. The rest of the SEC’s answer on how a demo day may not meet the definition of general solicitation is not quite as clear, as the answer describes demo days that work differently than many current demo days, university business plans, and statewide venture forums – but there is guidance on the best way to ensure a demo day is considered private.

Conducting Private Placements Online

The new no-action letter to Citizen VC provides clarity on how online platforms can conduct private placements in password protected web pages, ensuring they use procedures that enable the issuer and potential investors to develop a pre-existing, substantive relationship before the securities are offered.  Special congratulations go to Mintz Levin law firm, whose Daniel DeWolf authored the request letter to the SEC.  Mr. DeWolf is a member of the ACA Public Policy Advisory Council.

We’ll keep you updated as we learn about additional input from the SEC.  More details are in this legal alert from ACA Public Policy Advisory Council Member, Frank Marco of Wiggin and Dana.  Below are the details of the first two items – and you may also want to check out other questions and answers from the SEC:


Question 256.27: Are there circumstances under which an issuer, or a person acting on the issuer’s behalf, can communicate information about an offering to persons with whom it does not have a pre-existing, substantive relationship without having that information deemed a general solicitation?

Answer: Yes. The staff is aware of long-standing practices where issuers and persons acting on their behalf are introduced to prospective investors who are members of an informal, personal network of individuals with experience investing in private offerings. For example, we acknowledge that groups of experienced, sophisticated investors, such as “angel investors,” share information about offerings through their network and members who have a relationship with a particular issuer may introduce that issuer to other members. Issuers that contact one or more experienced, sophisticated members of the group through this type of referral may be able to rely on those members’ network to establish a reasonable belief that other offerees in the network have the necessary financial experience and sophistication. Whether there has been a general solicitation is a fact-specific determination. In general, the greater the number of persons without financial experience, sophistication or any prior personal or business relationship with the issuer that are contacted by an issuer or persons acting on its behalf through impersonal, non-selective means of communication, the more likely the communications are part of a general solicitation. [August 6, 2015]

Question 256.33: Does a demo day or venture fair necessarily constitute a general solicitation for purposes of Rule 502(c)?

Answer: No. Whether a demo day or venture fair constitutes a general solicitation for purposes of Rule 502(c) is a facts and circumstances determination. Of course, if a presentation by the issuer does not involve an offer of a security, then the requirements of the Securities Act are not implicated. Where a presentation by the issuer involves an offer of a security, the presentation at a demo day or venture fair may not constitute a general solicitation if, for example, attendance at the demo day or venture fair is limited to persons with whom the issuer or the organizer of the event has a pre-existing, substantive relationship or have been contacted through an informal, personal network as described in Question 256.27. If potential investors are invited to the presentation by the issuer or a person acting on its behalf by means of a general solicitation and the presentation involves the offer of a security, Rule 506(c) may be available if the issuer takes reasonable steps to verify that any purchaser is an accredited investor and the purchasers in the offering are limited to accredited investors. [August 6, 2015]