On January 10, 2017, the U.S. House of Representatives passed a bill which directs the Securities and Exchange Commission (SEC) to revise Regulation D. Prior to the proposed amendment, Regulation D exempts certain offerings from SEC registration requirements but prohibits “general solicitation” with respect to such offerings. The proposed amendment states that the prohibition shall not apply to events with specified kinds of sponsors — including “angel investor groups” unconnected to broker-dealers or investment advisers — where presentations or communications are made by or on behalf of an issuer, but:
- the advertising does not refer to any specific offering of securities by the issuer;
- the sponsor does not provide investment recommendation or advice to attendees, engage in investment negotiations with attendees, charge certain fees, or receive certain compensation; and
- no specific information regarding a securities offering is communicated beyond the type and amount of securities being offered, the amount of securities already subscribed for, and the intended use of proceeds from the offering.
If the bill becomes law, early stage companies which present at demo days and other “pitch events” will have clear guidance that such actions are exempt from violating the SEC’s prohibition on “general solicitation”, avoiding the need to verify investors as “accredited” as a result of their pitches. Investors likewise would have better assurances that companies have not tripped the general solicitation trigger.
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