August 18, 2013
Most early stage startups will find the requirement of appraising SEC of any changes to investor communications 15 days in advance onerous. It may be a deal killer as PPM equivalents are very expensive to create and in an environment of continuous fundraising, subject to change from week to week.
For instance, we update our current investors with metrics that demonstrate the health of our business on a bi-weekly basis and these metrics are communicated in confidence to any new investors we may have been introduced to (so they have the most recent and complete set of data to inform their decisions).
Another requirement that may defeat the purpose of allowing startups general solicitation is full disclosure merely for mentions in media (online or offline) or other PR channels such as trade shows or conferences. Partial disclosure is more reasonable, especially when terms of placement are not disclosed or discussed in these mentions.
The penalties for non-compliance are excessive and guarantee death for even growth-stage startups. This is exacerbated by the fact that the ecosystem for enabling compliance is not fully built out yet (the legal and investment banking systems today are built for large companies, not startups). Making is easier to stay in compliance should be made a priority, via an SEC-owned platform or third-parties, before penalties are exercised.