What are the Ground Rules for Publicly Promoting your Financing?
You’ve decided to raise money.
What are some ground rules before you start publicly spreading the word?
For starters, whenever you’re raising capital, be attentive to the applicable laws around issuing and advertising securities (whether that be shares, loans, SAFEs or other convertibles). Here, we’ll highlight some of the key rules.
First, there are no restrictions as to what medium (email, telephone, social media etc.) you can use to communicate that you are seeking investment.
With that said:
You cannot visit or contact a potential investor at their home unless they’re a family member or close personal friend.
You cannot pressure potential investors or take advantage of circumstances (like, a prospective investor’s disability or mental state) in order to sell your securities.
You cannot pay a “finder’s fee” to directors, officers, founders or major shareholders of the company in connection with a sale of securities. You can, however, pay others to find investors for you, though they may be subject to registration requirements.
What can you say when selling your securities?
Keep these points in mind when you are raising capital:
Information provided to potential investors must not be false or misleading.
You can’t tell a potential investor that you’re going to get listed on a stock exchange or marketplace.
You should include disclaimers when providing information to promote a security. For example, you might disclaim that your pitch deck or other investment documents may contain opinions or forward-looking statements which are opinions rather than guarantees of future performance, and that investors must be aware of the risks of investing and conduct their own due-diligence.
If you’re relying on a prospectus exemption to sell securities (for most start-ups, you would be), you don’t have to provide financial statements or other information to an investor before they purchase (more on that below).
Remember, strictly speaking, even private companies need a prospectus or an offering memorandum to accept investment from the general public. Otherwise, you will have to rely on private placement exemptions (like friends and family, employees or accredited investors) if you don’t want to have to prepare a long and expensive disclosure document.
For more information, check out our article called Who can Invest in my Company? or get in touch with a member of our team.
Ink LLP is a business law firm that acts as strategic counsel to ambitious entrepreneurs, investors, and high-growth companies. Contact one of our lawyers to discuss your business and how our team might be able to help you tackle the challenges of your business and the opportunities for growth.
This information is provided for informational purposes only and is not legal advice.