Is It Illegal To Say You're Raising Money?
from the seems-antiquated... dept
You see stories all the time from startup companies saying that they're in the process of raising money from investors. However, the folks at Silicon Beat have noticed that this practice may be illegal. There are plenty of regulations concerning raising funds, and soliciting them from the public without going through the whole SEC process is a no-no. Of course, the companies in question will obviously say that a statement to the press that they're raising money is quite different from soliciting funds -- but depending on how you read the regulations, this might not matter. If the funding source comes by way of this press statement, then it almost definitely does violate regulations. While the regulations are there for a good purpose -- to avoid tricking gullible investors, this does make you wonder if they go too far. Statements to the press shouldn't be considered solicitation of funds no matter what, and any investor at such an early stage is likely to go through a lot more due diligence (one hopes) than simply reading about a company in the news.
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On the flip side....
The experiment is to call the company's switchboard, tell them that you're an individual investor, and you'd like to participate in their offering. If they tell you to go pound sand, then the company is probably off the hook.
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qualified investors
The main issue comes in when money is accepted from unqualified investors who may be far less sophisticated, i.e. friends of the company, or the general public.
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