OK of private placement ads to aid startups

A decision by the U.S. Securities and Exchange Commission to lift an 80-year ban on advertising of private placements should prove a boon to private companies seeking to finance their growth. The SEC lifted the ban last week as part of the Jumpstart Our Business Startups, or JOBS Act, passed in 2012.

The move will become effective in mid-September, 60 days after the ruling’s publication in the Federal Register.

Many private companies, including startups, seek private investment to raise money to finance expansion, whether that entails hiring of additional personnel, promoting research and development, building of distribution channels, or all of the above. While venture capital is an option for some, other companies might target individual investors. But finding those potential investors can be a time-consuming challenge.
Enabling private companies to advertise their offerings will place them in front of many more possible investors, potentially leading to “meaningful access to capital,” Matt Stamski, an attorney with Faegre Baker Daniels LLP in Boulder, told the Business Report recently.

Additionally, Stamski noted, potential investors could be made aware of far more opportunities, helping to “improve their deal flow.”

Opponents of the move argue that not enough safeguards have been put in place to protect investors. It’s true that private offerings don’t come with the mountains of disclosures prevalent in public stock offerings. However, we believe that ample protection for private investors already exists.

Current rules limit participation in private offerings to accredited investors, those with a net worth of at least $1 million, not counting their primary residence. While we agree that the SEC should exercise great care to ensure that rules are adequate and that investors truly are accredited, we believe the new ruling will greatly enhance private companies’ access to capital.

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