Tag Archives: JOBS Act

No on General Solicitation

Eight days ago, the fundraising scene was changed when the ban on general solicitation was lifted. For the first time in eighty years, small businesses can now raise funds publicly. Under the new 506c rule, companies who file Form D with the SEC can solicit to the general public. However, no one is restricted to filing Form D if they want to raise money. There is the option of doing it the old fashion way!

Here at Tech-Rx, we are sticking to our time-tested and trusted 506b. There are several reasons we are not jumping the boat, the chief reason being that the alternative is quite onerous. Our first turn-off with Title II of the JOBS Act is that companies are required to take dramatic steps to verify investor accreditation. Investors in 506c deals will need to provide private documents such as tax returns or broker forms to companies they are interested in supporting in order to prove their accredited investor status. I don’t know about you but I try not to make it a habit to release such private information, especially with no guarantee of privacy.  (Does anyone else smell unwarranted government intrusion into personal matters?)

Our second turnoff is from the standpoint of the company. Companies are required to submit details to the SEC 15 days prior to general solicitation. Do you know anyone who has their presentation materials ready two weeks in advance? It is unheard of!

Lastly, failure to follow strict protocol will result in a one year ban from fundraising. In other words, certain death. A year is a long time in the early stages of a company and a year without funding is even longer.

Amidst all of the craziness of the new rules of engagement, we want to assure you that Tech-Rx is sticking to the traditional methods of fundraising through our accredited investor network.

What are your thoughts on general solicitation? Have you ran across any issues with the new rules?

-Steve Hogan, Managing Partner, Tech-Rx

 

AngelList Fires Back On SEC

You may have noticed AngelList’s call to action against the latest SEC JOBS Act ruling. AngelList agrees with our initial assessment of the ruling but read on for their deeper analysis of how the law will affect startups. AngelList proposes that the JOBS Act will defeat their original goal of public fundraising for startups. Reason being that the new rules will be so difficult to follow that startups will solely raise money privately. And with so many startups fundraising privately, they are lowering their chances of raising any money at all. Or they could always find the cash somewhere that is not tracked by the SEC, but does it really need to get to that point? We agree with AngelList that the JOBS Act will result in unintended consequence such as spelling out the failure of thousands of startups – as a result, further stunting American job growth. We agree that what is called for in the JOBS Act is simply unfeasible. We agree with AngelList’s proposed ideas on how to go about investment tracking. The SEC is looking for feedback on potential consequences of their proposed rules. Share your opinion now as there are only 9 days left to comment! What do you think could be possible negative consequences as a result of the JOBS Act? Share your comments here. -Nikki Griggs, Business and Marketing Associate, Tech-Rx

Everyone Loses with New SEC Ruling

Yesterday, the Securities and Exchange Commission (SEC) ruled that startups can begin publically advertising their securities. This new ruling affects investors, journalists and startups alike. While journalists will see their already saturated inboxes take on a whole new meaning of full, startups will have a harder time being noticed amidst all of the noise. What does this mean for investors? While the SEC still needs to rule on whether or not non-accredited investors can legally invest in private companies (and that will open an entirely different can of snakes), this new ruling only affects accredited investors for now.

Our take on this —

Discovery = More Work

Forget that startups will have to invest more energy in obtaining press, energy that could be used toward working on the operating part of the business. There is going to be a tidal wave of startup fundraising press releases. While journalists are already beginning to bolster their inboxes, investors should begin preparing as well. As soon as startups find out your identity as an investor, it will be the decade of telemarketing all over again. Spam-o-Matic at its finest! Not only will you have an absurd amount of startup pitch decks, but how will you determine the diamonds in the rough? With so much noise, it will be difficult to tell the frogs from the princes.  I think I will need a new email address — donotsendyourbusinessplantosteve@tech-rxventures.com  Better yet, some sort of inbox plugin to automatically scan through the plans and flush those that make one or more of these Common-but-Fatal Errors.

Cap Tables and “Activists”

Cap tables in early-stage companies are frequently ugly, but they are about to look a whole lot uglier. While it may not be your job to manage the cap table, a cap table that is longer than a resume is ultimately not fun to work with. The number one issue of a lengthy cap table you face as an investor is that you are unlikely to know the other shareholders and their decision making habits.  While many of the investors will likely be itty-bitty shareholders who aren’t actually paying much attention to the company – essentially playing the numbers game and hoping for a reasonable exit or putting money into their brother-in-law’s new venture just to keep their wife or husband happy –  and others will be truly supportive of the company, all it takes are a few trouble-maker shareholders to ruin the party for everyone.  And its a safe bet that there will be opportunists who will buy into a deal, become troublesome for management and/or the other shareholders, and then offer to sell their shares back for a “small” (500%) profit.  Management and the other shareholders will be only too glad to pay off just to get rid of this “bad money” and let management focus on the company.

Poisoning the Well

This is a problem for the company trying to raise cash.  One of the biggest advantages of pitching your venture to a few investors at a time, especially for first-time entrepreneurs, is that you get to screw up incrementally i.e. you can polish your pitch based upon the feedback you receive.  On the other hand, when you go straight to broadcast, and fail to tell your story well, EVERYONE will have heard you and no one will listen when you finally do get your pitch refined.  That’s why God invented focus groups. Getting feedback from small groups and refining your product is not foolproof (Ref: Groupon Super Bowl) but it is a lot more likely to get results than opening simultaneously in theaters across the country (Google “Disney Lone Ranger”).  Entrepreneurs have a tough-enough time raising capital as it is.  There will be plenty of naysayers. They shouldn’t poison the well themselves.

Good Intentions, etc.

The JOBS Act was created with the intention of helping new business, growing existing ones and creating jobs.   Noble goals.  We fear, however, that unthinking folks may do more harm than good to themselves and other as this volatile and noisy process evolves.

What do you think? Are there ANY winners?

-Steve Hogan, Managing Partner, Tech-Rx