Why Don't More Startups Advertise to Angel Investors?
In the Fall of 2013, updates to the JOBS Act introduced significant changes to how startups can solicit funding from investors. In particular the changes to rule 506 allowed, for the first time, the ability to make an offer across virtually all forms of media. This advertisement is known as general solicitation. Why then do so few startups take advantage of this rule change when raising funds? I believe there are three big reasons the new rules haven’t spurred significant changes in the fundraising habits of startups: New Players, Old Rules Lawyers and advisors are used to the old rules. Old habits are hard to change and lawyers are nothing if not conservative. The potential negative impacts on both the startup and the lawyer from misdirected advice is enough to make many lawyers hesitant to delve into new territory until a status quo has been established. Who Can Play the Game? The second reason has to do with accredited versus non-accredited investors. To ...