What is general solicitation?

Depending upon which regulatory pathway a company choses to raise capital, the company may be limited in how it can connect with potential investors. For example, the most commonly used offering exemption under the federal securities laws — Rule 506(b) of Regulation D — prohibits the use of general solicitation to market the securities.

What are common types of communications that are considered general solicitation?

A solicitation that conditions the market for an offering of securities is generally viewed as a general solicitation that is marketing the securities. Examples include:

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Newspaper and magazine advertisements

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Unrestricted public websites

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Television and radio broadcasts

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Seminars
(excluding demo days)

How can I avoid communications viewed as a general solicitation?

Conduct an offering that is limited to investors with whom the company (or its broker dealer or investment adviser) has a pre-existing, substantive relationship.

Pre-Existing Substantive Relationship

  • A “pre-existing” relationship is formed before the start of the offering or is established through a broker-dealer or investment adviser prior to that investment professional’s participation in the offering.
  • A “substantive” relationship is formed when the entity offering securities (i.e., the company or its broker-dealer or investment adviser) has sufficient information to evaluate and evaluates a potential investor’s status as an accredited investor.

Demo Day Event

Recent rule changes clarify how companies can pitch to potential investors at qualifying demo day events without being considered a general solicitation. Key criteria include:

  • Sponsor of the event is a college, university, state or local government, nonprofit organization, angel investor group, incubator, or accelerator
  • Sponsor is limited in its role outside of serving as the event host
  • Advertising for the event does not reference any particular securities offering
  • Information about the offering shared during the event is limited to notification of planned or ongoing offering, type and amount of securities being offered, intended use of the proceeds, and unsubscribed amount

This resource represents the views of the staff of the Office of the Advocate for Small Business Capital Formation. It is not a rule, regulation, or statement of the Securities and Exchange Commission (“Commission”). The Commission has neither approved nor disapproved its content. This resource, like all staff statements, has no legal force or effect: it does not alter or amend applicable law, and it creates no new or additional obligations for any person.

Have suggestions on additional educational resources? Email smallbusiness@sec.gov.