It seems obvious that a company doing a securities crowdfunding deal should be able to use any and all avenues to tell the crowd about the deal, but alas, the world is not that simple. If you are looking to raise money through a crowdfunding deal, be aware of the many rules that limit what you can say, when you can say it and through what channels you can say it. This applies to SEC Regulation Crowdfunding Offerings as well as Minnesota MNVest offerings. The rules are different for private offerings so don’t try this with them.
So, here, in all their glory, are the rules for “who, what, where, why and when” you can talk about your crowdfunding offering.
Before You Start
Before you have even filed anything with the SEC or under MNVest, you cannot:
- Meet with potential investors
- Provide “sneak peaks” or “first looks”
- Make any public announcements through any channel
- Announce your plans at a conference
- Participate in demo days
- Start unusual advertising
- Give an interview to Playboy magazine (this really happened with Google just before Google filed its IPO in 2004)
These rules are intended to prevent companies from either “gun jumping” or “conditioning the market,” both phrases with no precise definition but generally intended to mean that the company is looking to make it easier to sell its stock (promissory notes, units, etc…) when it finally does make the required filings. The SEC calls this “conditioning the public mind or arousing public interest in the offer.” One of the hardest of these to define is unusual advertising, especially in the era of social media. Factual statements about the company are best, avoiding Remember that a securities regulator cannot know your intent, but they can sure see your actions, so it is best to be careful about any activity out of your normal past practice before you make your filings.
That said, normal advertising, especially about already available products or services, is allowed. If you do plan to significantly change your marketing or if you are launching your company around the time of your offering, you will want to connect with counsel to make sure you remain compliant with the advertising rules.
Be especially aware of how your website and other social media discusses your business, its prospects, plans and future. Once you determine you want to start a crowdfunding offering, you need to police your communications and if in doubt, check with your legal counsel who has experience with these issues.
After Launching Your Offering
Once you’ve filed your forms and your offering has been declared “effective” (never say approved, securities regulators never approve anything), you will continue to be limited in what you can say, especially about the offering outside of the Portal. MNVest has some pretty strict rules on what you can do for advertising. Here’s what a MNVest advertising must clearly state:
- the advertisement is not the offer and is for informational purposes only;
- the offering is being made in reliance on the exemption under MNVest;
- the offering is directed only to residents of Minnesota;
- all offers and sales are made through a MNvest portal; and
- the Department of Commerce is the securities regulator in Minnesota;
In addition to the above, you can add the following:
- your name and contact information;
- a brief description of your general type of business;
- the minimum offering amount you are attempting to raise through the offering;
- a description of how you will use the funds raised through the MNvest offering;
- the duration that your MNvest offering will remain open;
- your logo; and
- a link to your Web site and your MNvest portal.
Try building a catchy advertising campaign around that! These restrictions apply to any form of advertising, including Facebook, newspapers, emails, Twitter, Instagram, telegraph, pigeon or whatever new form of communication someone unveiled at the last Consumer Electronics Show.
Under Regulation Crowdfunding, there are only two permitted forms of communication:
1) Those that don’t include terms of the offering. If you don’t mind not telling people about such unimportant things like the amount of securities offered, the type of the securities (debt or equity, common or preferred, etc.), the price of the securities or the closing date of the offering period, then you can advertise about the offering. Including any generic information about your company’s mission or background in these communications is permitted. When disseminating these “non-term” messages, feel free to link to the Portal’s website but do not link to any other third party website that has any content that could be construed as terms (i.e. a third-party article that outlines your offering terms).
You can of course continue your typical company communications and advertising. Even during your regulation crowdfund, you should still continue running your business as usual. As long as you do not mention the terms of your offering, you can even increase your marketing presence via press releases, newsletters, and the like.
2) If you want to advertise the actual terms of the offering, the SEC kindly allows you to make a statement that 1. you are conducting an offering pursuant to Section 4(a)(6) of the Securities Act, 2. include the name of the portal through which the offering is being conducted and a link directing potential investors to the platform, 3. describes the terms of the offering and, 4. provides factual information about the legal identity and business location of the issuer, limited to the issuer’s name, address, phone number, website, e-mail, and a brief business description.
While these are the limits to what you can say, there is no requirement that you must share all of this information in a this kind of notice. For example, many regulation crowdfunders may opt to avoid sharing terms in a factual notice, and will instead just direct people to their offering platform.
When drafting your brief business description, you can describe your general business, principal products or services, and the industry segment. However, you cannot include any information about product functionality, target market, or customer testimonials. Be sure to avoid including any language implying growth, success, or progress in a factual notice. Also, just like in non-terms communications, do not link to any other website besides your platform.
While it is true that the content of factual notices is limited, the medium in which it is shared is not. Feel free to publish these notices anywhere, be it Google ads or go old school in a newspaper. However, do note that these factual notices must be standalone communications. It cannot even be connected or embedded in any other communication—so do not post it on your website or include it at the end of an email blast announcing new products.
Best Adverting Practices
To ensure that you comply with the rules regarding the communication after your crowdfunding launch, we recommend the following:
Except for an “Invest Now” button that links to your portal, do not include any information about your offering on your website. However, you can create a landing page that visitors arrive at before they enter your site. The landing page can include the information you are permitted to state and an option to continue to your company’s regular webpage or to go to your portal to learn more about your offering.
Images and Videos
Images and videos are allowed in under MNVest and in “factual notices.” Just be sure that you include no more than a few photos, that they are not misleading, and that they do not imply growth in revenue. If you want to include a video, make sure it is short and limits itself to the permitted content.
Interviews are not advisable since the resulting article by a journalist will generally burst the bubble of permitted communications. Even if you stringently stick to the permitted information in your interview, the journalist will likely then add additional content violating the rules. Even though these are the journalist’s actions and not yours, simply allowing yourself to be interviewed makes the resulting article a communication of your company.
No need to worry about articles that you did not participate in or suggest to a journalist. As long as you do not like or share that article, it is not considered company communication and thus not constrained by the non-terms or factual notice restrictions. These restrictions apply even if you indirectly encourage the article, so you can’t suggest a friend text a friend who knows a journalist.
Under Regulation Crowdfunding, you could run two separate communications, i.e., your company could tweet a “factual notice” right after tweeting a “non-terms” message. However, be careful with this side-by-side tact. Putting these two messages next to one another in a print publication, could raise regulatory red flags. If you are doing a MNVest offering, sorry, you can only say what is allowed and nothing more.
Conversations with Friends
Sharing information verbally to your friends is no problem, but it can’t be a conversation open to the public on Facebook or some other public forum. Feel free to ask them to spread the word, but do not compensate them in any way for doing so, especially avoid paying anyone who is not a licensed broker-dealer to help raise money, but that’s another topic. Also, do not ask them to write favorable reviews on your portal’s chat board.
If friends email you with questions, the best practice is simply to direct them to your portal link.
After the Offering
All of the aforementioned limits only last until the offering is closed. Once that occurs you are free of any communication restrictions, as long as you do not share anything misleading, realizing that you now have a lot of new shareholders who will be eager for information and you will owe them a duty to be honest in your communications.
This article was written by attorney Todd Taylor.