Crowdfunding on Steroids The new Rule 506 changes everything. The SEC has lifted an 80-year ban on general solicitation and start-ups and other Issuers for the first time can use public advertising to sell private offerings. The new Rule 506 may prove to be the answer to the prayers of startups frustrated with existing fund sourcing platforms. But it also has hidden dangers that will cause many issuers to continue to use the “old Rule 506” [506(b)].
Among the new Rule 506 strengths:
The amount that can be raised is unlimited
There is no requirement for review of the offering under any Blue Sky laws (state securities regulations)
There is no review of the offering by the SEC
Solicitations can be online or offline
Solicitations can be made to anyone!
Sales (as opposed to solicitations) must be to accredited investors, and issuers must be able to verify that any actual investor is “accredited.” Also, proposed rules will require issuers to send the SEC all marketing copy; as of this writing, however, there is no need to send copies of solicitation materials to the SEC (or to state regulators).
Soon you will start to see:
Emails asking if you might be interested in learning about investing in someone’s project
Videos of founders and entrepreneurs soliciting your interest in their projects
Links on websites inviting you to click through to learn more about an investment
Mobile apps with increasingly creative solicitation
Investment funds now will have access to a much wider pool of potential investors than before, subject to separate rules and regulations promulgated by their own, separate regulators.