Tag: Rule 204

shark tank for regulation crowdfunding

Shark Tank For Regulation Crowdfunding?

On By crowdfundattnyIn Reg CF, Regulation CF, Rule 2042 Comments

I’ve been asked by more than a handful of entrepreneurs about using Reg CF in a Shark Tank format. The founder appears in a TV studio with experienced investors, who pepper her with questions. If viewers like what they see, they scan a QR code at the bottom left, which takes them through the Reg CF investment process.

Non-accredited investors getting easy access to great startups, agnostic as to geography. Exactly what the JOBS Act wanted. 

I’ve had to tell each of those entrepreneurs No.

Each entrepreneur thought I was the bad guy, but the real bad guy is Rule 204, the Reg CF advertising rule. Rule 204 gives a company raising money two choices for advertising outside the funding portal. One, you can say anything you want as long as you don’t mention any of the six “terms of the offering.” Two, you can mention the terms of the offering but say almost nothing else, just the company’s name, address, phone number, and URL, and a brief description of the business (i.e., a “tombstone” ad).

The six deadly “terms of the offering” are:

  1. How much you’re trying to raise
  1. What kind of securities you’re selling (e.g., stock or SAFE)
  1. The price of the securities
  1. How you plan to use the money
  1. The closing date of your offering
  1. How much you’ve raised to date

Now imagine the founder answering questions in the studio. She can say anything she wants about the product, about herself, her team of advisors, the market, the social benefits of the company, all that stuff. Even with careful scripting, however, it’s unrealistic to think she can answer questions accurately and generate enthusiasm in the audience (which is the point) without mentioning any of those six items. Maybe a founder can do it here and there, but you wouldn’t bet your TV show on it.

The purpose of Rule 204 is to ensure that every Reg CF investor gets the same information as every other investor. The regulations want everything about the company and the offering to be in one place:  the funding portal. They don’t want someone who watches your TV show to know either more or less than someone who doesn’t.

Personally, I think Rule 204 is misguided. If there’s a risk that someone who watches your TV show will know either more or less than someone who doesn’t, you can (i) post a video of the TV show on the funding portal, and (ii) make sure TV viewers invest through the funding portal’s platform, where they can see everything. Eliminating Rule 204 would invigorate the Reg CF market without hurting investors.

Eliminate Rule 204 and stop issuers and portals from using artificially low minimums. That’s my platform for 2026.

In the meantime, I’m afraid a Shark Tank for Reg CF isn’t going to work.

Questions? Let me know.

Markley S. Roderick
Lex Nova Law
10 East Stow Road, Suite 250, Marlton, NJ 08053
P: 856.382.8402 | E: mroderick@lexnovalaw.com


SEC Provides Guidance On Advertising By Title III Issuers

On By crowdfundattnyIn SECLeave a comment

sec guidance

The SEC just provided guidance for Title III issuers in the form of Compliance and Disclosure Interpretations. You can read the CD&I’s themselves here.

Before Filing

Before filing Form C (the disclosure document used in Title III) and being listed on a Funding Portal, a Title III issuer may not take any action that would “condition the public mind or arouse public interest in the issuer or in its securities.” That means:

  • No Demo Days
  • No email blasts or social media posts about the offering
  • No meetings with possible investors

After Filing

Once a Title III issuer has filed Form C and been listed on a Funding Portal, any advertising that includes the “terms of the offering” is subject to the “tombstone” limits of Rule 204. The “terms of the offering” include the amount of securities offered, the nature of the securities, the price of the securities, and the closing date of the offering period.

Advertising that does not include the “terms of the offering” is not subject to Rule 204. Theoretically, for example, an issuer could attend a Demo Day after filing its Form C, as long as it didn’t mention (1) how much money it’s trying to raise, (2) what kind of securities it’s offering, (3) the price of the securities, or (4) the closing date of its offering.

Three caveats:

  • Have you ever been to a Demo Day? It’s hard to imagine someone wouldn’t ask “How much money are you trying to raise?” or that the company representative wouldn’t answer. Theoretically possible, yes, but in practice highly unlikely.
  • Even the statements “We’re selling stock” or “We’re issuing debt” are “terms of the offering” and therefore cross the line.
  • There’s an interesting difference between the regulations themselves and the CD&Is. The regulations say “terms of the offering” means the items mentioned. The CD&Is, on the other hand, say “terms of the offering” include the items mentioned. Thus, if you take the CD&Is literally, maybe “terms of the offering” also include other things, like the start date of the offering.

Video

After filing, a Title III issuer can use video to advertise the “terms of the offering,” as long as the video otherwise complies with Rule 204.

Media Advertisements

After filing, if a Title III issuer is “directly or indirectly involved in the preparation” of a media article that mentions the “terms of the offering,” then the issuer is responsible if the article violates Rule 204.

EXAMPLE:  You attend a Demo Day, and the organizer announces how much money you’re trying to raise. You violated Rule 204.

EXAMPLE:  A reporter from your local paper calls. Eager for the free press, you tell her you’re raising $200,000 for a new microbrewery in town, which she repeats in her article. You violated Rule 204.

EXAMPLE:  A reporter from your local paper calls. Eager for the free press, but very savvy legally, you tell her about your plans for the microbrewery but carefully avoid telling her how much money you’re raising or any other “terms of the offering.” She goes to the Funding Portal and finds out herself, and reports that you’re raising $200,000. You violated Rule 204.

To be safe, you just can’t be involved, directly or indirectly, with anyone from the press who doesn’t understand Title III and promise, cross her heart and hope to die, not to disclose any “terms of the offering.”

Advertisements on the Funding Portal

Advertising a Title III offering outside the Funding Portal is a minefield. But inside the Funding Portal is a completely different story. Inside the Funding Portal is where everything is supposed to happen in Title III. Focus your attention there, where the minefields are few and far between.

Questions? Let me know.