The Perils of General Solicitation — VentureSouth

  1. “Any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio”
  2. or (enjoyably circular) “Any seminar or meeting whose attendees have been invited by any generalsolicitation or general advertising.”
  1. Collect and review the investor’s tax documents to verify the income for the last two years — and get a written representation from them that they have a reasonable expectation of reaching the required income this year too
  2. Review both a credit report for liabilities and bank, brokerage, or other statements for assets — to verify the overall net worth requirement
  3. Get a letter written by a professional that knows the investor well — a registered broker-dealer, an SEC-registered investment adviser, a licensed attorney, or a registered CPA — that says the investor is accredited
  4. Use a third-party platform that does this work for you.
  1. Financial regulators. The SEC and FINRA keep a close eye on issuers of securities; that’s their job. If you mess up the rules, they should notice — and if they do the investigation process can be significant and the penalties if you have violated the rules can be worse.
  • Say that anything is “risk-free” or “guaranteed”.
  • You can provide facts (like the security is secured against the assets of the company) but subjective language, especially about risk, is dangerous. An attorney ought to review all your securities offering documents, and your advertising, press releases, and anything else you release before they become public, to make sure the risks are described reasonably.
  • Provide any kind of advice or recommendations, like telling a potential investor that this security is a suitable one for its situation.
  • Generally speaking, pay other people to raise money for you. You can if (a) the payment is a flat fee paid regardless of how much is raised (e.g. paying a PR firm to write press releases if you are doing a 506(c)) or (b) the payment is to a registered broker-deal, because they are allowed (after a thorough licensing process) to receive commission for selling securities. No-one else can. One of things you have to attest to in most deals is that you didn’t pay anyone — so don’t.
  • Lie, mislead, exaggerate, deceive, don’t intend to return the investment some day, …



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VentureSouth invests in early stage companies in the Southeast