The fundraising process requires countless hours to develop and refine an investor pitch. While the majority of that time will be focused on how to find and raise money from the best investors on the best terms, it is critical to remember that there are limits to what can be said and done under applicable securities laws. Failure to comply with securities laws can be a trap for the unwary – with potential consequences that include the right of an investor to ask for his or her money back. While the laws are complex, understanding a few basic concepts can go a long way.
Don’t talk about stock in early meetings. During initial or informal networking sessions, avoid describing potential deal terms, such as valuation, price per share or type of security (even convertible notes). Dissemination of those terms could be considered an “offering” of securities under applicable law, and should be done in a controlled fashion.
Don’t post your offering materials online. Private offering documents are not supposed to be made generally available to the public.
Keep track of what you say and to whom. If you are concerned that you may have said something that in hindsight was too optimistic, or is no longer accurate, make sure to correct the record directly. Do not rely on boilerplate disclaimers in investment documents.
Don’t play favorites. No individual potential investor should have an “inside scoop” or be provided with special information. If something is important to one investor, it is probably important to all of them.
Beware of finders. If someone proposes that they be paid to help you raise money, make sure to ask if they are a “registered broker-dealer.” The involvement of an unregistered broker-dealer can violate securities laws.
Fundraising is hard enough. Securities law problems are the last thing that any emerging company needs. But with some advance planning, and some basic guidelines, the path to securities law compliance can be fairly straightforward.
This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.