Startups can now ask for your money, but you can’t give it to them | The Verge

Startups can now ask for your money, but you can’t give it to them | The Verge.

The Verge has put out an interesting piece on the recent changes to Rule 506 of “Reg. D”, the section of federal securities regulations dealing with “private placements” of investment,  such a angel investment and seed-round funding. Generally the changes, implemented as part of the JOBS Act, are intended to loosen some of the prohibitions on advertising investment opportunities in companies seeking private investment. There still, however, remain a lot of stings attached not only to the process of seeking such investment, but also in the process of actually receiving that investment (or determining if you can receive a particular investment). This is still an enormously complicated subject, fraught with potential peril for both potential investors and for the companies seeking outside investment.

 

The good news is, there are actual efforts underway to rationalize at least some of the existing restrictions on these types of “private placement” investments, and it it likely that further easing of restrictions will continue to come about. There is unlikely to ever be a “free and open market” for private placement investments, due to overriding concerns regarding fraud. That having been said, any steps creating a more rational marketplace for private investment is potentially a good thing for our entrepreneurial economy.

 

(For a bit more analysis on the changes to Reg. D, check out the excellent piece by my associate, David Freda, on our companion Business Law Blog” http://bcslaw.wordpress.com/2013/09/23/facebook-friend-seeks-funds-part-1/ )

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