The SEC has finalized the Title III crowdfunding rules. Now it is time to see how people will use the new rules.
One thing that I think might have been overlooked in all of the excitement over the final rules is the possibility of doing a Title III equity crowdfunding at the same time as you pursue a Reg D or Reg A offering.
The SEC made this possibility clear in a number of different places in the final rules.
In one place, in talking about the economic impacts of the rules, the SEC said this:
The costs associated with not increasing the investment limit above $1 million are mitigated in part by the ability of issuers to concurrently seek additional financing in reliance on another type of exempt offering, such as Regulation D or Regulation A, in addition to the offering in reliance on Section 4(a)(6).
Issuers that go through with the pain and difficulty of a Title III offering might consider doing a Reg A at the same time.
In another place, the SEC had this to say.
We also provided guidance clarifying our view that offerings made in reliance on Section 4(a)(6) will not be integrated with other exempt offerings made by the issuer, provided that each offering complies with the requirements of the applicable exemption that is being relied upon for the particular offering.
But the SEC was careful to note it wasn’t providing a blanket exemption from integration.
While we recognize this concern, we note that the final rules do not provide a blanket exemption from integration with other private offerings that are conducted simultaneously with, or around the same time as, a Section 4(a)(6) offering. Rather, we provide guidance that an offering made in reliance on Section 4(a)(6) is not required to be integrated with another exempt offering made by the issuer to the extent that each offering complies with the requirements of the applicable exemption that is being relied upon for that particular offering. As mentioned earlier, an issuer conducting a concurrent exempt offering for which general solicitation is not permitted will need to be satisfied that purchasers in that offering were not solicited by means of the offering made in reliance on Section 4(a)(6). Alternatively, an issuer conducting a concurrent exempt offering for which general solicitation is permitted, for example, under Rule 506(c), cannot include in any such general solicitation an advertisement of the terms of an offering made in reliance on Section 4(a)(6), unless that advertisement otherwise complies with Section 4(a)(6) and the final rules.
One piece of really interesting language above is the following: “an issuer conducting a concurrent exempt offering for which general solicitation is not permitted will need to be satisfied that purchasers in that offering were not solicited by means of the offering made in reliance on Section 4(a)(6).”
This language is interesting because it implies that you can avoid blowing the prohibition of general solicitation if you can be “satisfied that purchasers in the offering were not solicited by means” of a general solicitation. This is not guidance on the Reg D area, but I think it informs what might be some legitimate thinking about the parameters of the prohibition on general solicitation.
It will be interesting to see if issuers can actually navigate this pathway.