Privacy is Dead

Hey Startups, You Can’t Use Fundraising Regulations as an Excuse to Keep Secrets Anymore

Thanks, JOBS Act!
general assembly demos1 Hey Startups, You Cant Use Fundraising Regulations as an Excuse to Keep Secrets Anymore

Before the JOBS Act, demo days were only legal if presenters didn't mention money, or if every attendee was verified as an accredited investor.

Of key importance to private fund managers engaging in fundraising, the JOBS Act directs the Securities and Exchange Commission (“SEC”) to eliminate the prohibition on general solicitation and advertising applicable to private offerings of securities to “accredited investors” under Rule 506 of Regulation D under the U.S. Securities Act of 1933 (the “Securities Act”). -JDSupra

For whatever reasons, sometimes startups and investors don’t want to talk about money. Publicly, that is. Amongst themselves, it’s quite standard.

There are myriad reasons why a source won’t disclose funding information to a journalist. A deal may not have closed, a company may be trying to fly low, or the financiers involved may be minor players who don’t want the spotlight. The secrecy may be because the investors and startups want to coordinate publicity in a way that has maximum impact (read: send press release exclusively to the TechCrunch rewrite robot). Sometimes, every party is worried about stepping on the other parties’ toes. But the reason given is always the same—blame it on the SEC.

After the president signs the JOBS Act today, that excuse will no longer be valid.

Recently, Betabeat was given access to a website with fundraising information about a group of startups, as long as we swore to secrecy “due to security laws.” Foursquare has been extremely cagey about its secondary sale of private employee stock for the same reason. The security laws excuse was already a bit questionable since the SEC never enforced this rule. The prohibition against advertising and general solicitation, originally intended to protect unsavvy common folk from being swindled into risky investments, also meant most demo days are technically illegal. But not for long!

“There are only a few hours left for you to tell me that you ‘can’t discuss fundraising’ due to anti-marketing regulations,” Fortune’s Dan Primack wrote in his Term Sheet newsletter this morning. “Once Obama puts pen to paper, any reticence to talk is on you, not the government.” You’re all free to tell us all your fundraising details. Hooray! Tips@betabeat.com!

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