Below is an article by Inc. entitled "5 Ways Raising Capital Is Changing".
5 Ways Raising Capital Is Changing
By: Marla Tabaka, Inc.
September 23, 2013
With the ban lifted on advertising your funding round, there's a whole new world of opportunities for capital-seeking entrepreneurs. Make sure you know the rules.
Today, the Securities and Exchange Commission lifts the ban on general solicitation--a rule that was originally put into place during the Great Depression when unscrupulous businessmen would defraud investors across state lines by going door to door selling fake securities. In response to such a serious threat of hardworking people losing their savings, rules were put into place to ensure that securities were only offered to friends, family, and other known associates who had enough wealth to take the risks. Unfortunately, this law had unintended consequences for small business owners who did not have large networks of millionaires at their disposal.
In answer to the effect these laws had on small business, the JOBS ACT was signed in April 2012, which legalized securities-based crowdfunding in two separate phases. What's called the Title II phase goes into effect today, allowing businesses to advertise their need for capital--as long as they are only accepting accredited investors into the offering and filing the correct form.
While this may seem like the greatest thing since sliced bread to cash-starved entrepreneurs, there are ways to get into trouble--and the SEC is going to be watching.
So, what does this mean for businesses? To ensure small business owners understand this monumental legislation, I tapped some of the leading minds in crowdfunding to address today's rule changes. Here are five ways raising capital is changing:
1. Starting today, businesses are legally allowed to advertise their need for capital as long as they file the regular Form D, specifying a 506(c) capital raise. "Businesses will not be limited to any specific form of advertisement, including billboards, commercials, and digital ads. It is likely that many businesses will turn to the emerging crop of investment platforms designed for securities-based crowdfunding, as that is where investors are being attracted," says Judd Hollas, founder and CEO of crowdfunding platform EquityNet.