The S.E.C. has finally lifted the ban on General Solicitation for private raising of funds, which presumably will assist entrepreneurs find investors for startup or expansion funding. The new regulation will not go into effect until 60 days after it is first published in the Federal Register. Although general solicitation for investors is going to be permitted, an issuer/promoter must take reasonable steps to make sure that the investor is “accredited” prior to the investment.
Initially, I think this new change in the law will prove to be rough-going, as there will be opportunities for scam artists to take money from unsuspecting investors. Plus, statistics show that any investment in startups is usually an opportunity to lose money. It will be very important for every would-be investor to do their due diligence, prepare to lose money, and diversify their risk.
However, it does represent a democratization of the fundraising process to enable honest entrepreneurs to meet new investors and raise capital which up to now they have not been unable to do. The hedge funds, private equity funds, and venture capital funds can also use the new law, but they may not have the same needs as the entrepreneur.
