Archive for September 2013

The SEC’s new rule lifting the ban on general solicitation becomes effective on Monday, September 23rd. This new rule 506(c) requires that issuers using general solicitation take reasonable steps to verify its investors are accredited investors. Recently, ACA issued guidance that verifying membership in an Established Angel Group (EAG) should meet the “principles-based methodology” in the SEC rule.

The EAG method conforms well to the flexible, principles-based-methodology that the SEC has designed. As the SEC has noted, it expects many practices – including methods already in use by which issuers have verified investors are accredited – to be developed and evolved as useful to the early-stage company ecosystem.

It is likely that many if not most deals that angel groups will see going forward will fall under the category of Rule 506(c). Current SEC language describing general solicitation includes: “any seminar or meeting whose attendees have been invited by any general solicitation or other advertising.” SEC staff on Tuesday publicly stated that “most demo days and pitch competitions” are likely to be considered general solicitation (See: for Advisory Committee on Small and Emerging Companies Meeting held September 17, 2013. Webcast archive expected to be available shortly.)

This blog article was written by Ingrid Vanderveldt, Entrepreneur-in-Residence at Dell, an ACA annual partner.

My journey and experiences on both sides of the table, as both an entrepreneur and an investor, have made me aware of the special relationship between investor and investee. When both sides strive to create maximum value, beyond the traditional financially-focused benchmarks, the relationship, fostered well, can produce tremendous results that will spill into every other area that leads to longstanding success.

Form a support group.

Before you start any new undertaking, it is helpful to prepare; investing is no different.

ACA today provided guidance on the significance of angel group membership in connection with new standards for accredited investor verification. Under Securities and Exchange Commission (SEC) Rule 506(c), which becomes effective September 23, 2013, startups and emerging companies that generally solicit for investors will have heightened duties to verify that all purchasers are accredited.*

Rule 506(c) represents a significant change in securities law, and uncertainty about the verification process is of concern to members of the Angel Capital Association and the active angel community at large. ACA has been vocal in our objections to the rule’s safe harbors that would require sharing wealth or income data, but it is important to recognize that they are not the full rule. The SEC provided a significant and flexible approach for complying with this rule using a principles-based methodology. ACA is providing its guidance on how membership in an Established Angel Group may meet the requirements for a startup that uses general solicitation to verify that all investors are accredited under the principles-based methodology specified in Rule 506(c).