There is a lot of conflicting information out there about what issuers can and can’t say during their crowdfunding campaigns and how they can and can’t promote their deals. Here is an outline as to how companies can get the word out about their offerings without running afoul of the SEC regulations.
Title III Deal Promotion Cheat Sheet
#1 most important thing to remember in ALL Communications:
You can only say truthful supportable things – NO exaggerated claims and NO only highlighting only the positive things without mentioning the negative
Examples of exaggerated claims:
- This product is the best – if you say this we need to see a Consumer Reports or other 3rd party source saying that
- This product will change the world or is a miracle
- Any claim of a certain amount of return to investors like “you will make 5 times your money!”
- Only focusing on revenue and not mentioning that the company has not made a profit
#2 most important thing to remember:
There are two types of communication allowed under the securities laws and never the twain shall meet (you can’t cross the streams) – meaning that you can’t link one to the other or have them side by side on a page
Type One – Terms Communication
A “Terms Communication” also called a “Tombstone” can list ONLY the following information. Seriously, if it lists any other information or has a link to something that contains any other information it is a violation of the law.
- Amount of money the company is raising (e.g., up to $1,000,000)
- The type of securities the company is selling (e.g., preferred stock or convertible notes)
- The price per unit (e.g., $100 per share or $1,000 per note)
- The offering deadline (e.g., September 25, 2016)
- Brief description of the business (e.g., this is brief and can simply describe the name of the company, where its principal place of business is, what product or service it offers and who its customers are generally)
- That’s it! – NO backgrounds of the officers and directors, no description of the market size and penetration, no info on competitors, no financial information – NONE
- Caveat: if the company also has a social mission in addition to the products and services, you can mention that
- This communication MUST have a link to the profile page on the funding portal site where the transaction is actually conducted
Type Two – Non-terms Communication
A “Non-terms Communication” can provide any truthful and supportable information about the company and state that it is raising money but CANNOT mention items (1 – 4) listed above. That means that it cant say how much the company is raising or if it is selling stock or notes, at what price, or the deadline of the offering. But what is can say is ANY OTHER TRUTHFUL SUPPORTABLE THING, including the use of videos and other media. Some examples of what you can include in a Non-terms Communication are:
- Information about the management team and their past companies and exits
- The history of the company, why it was founded and by whom
- The mission of the company
- Financial past performance of the company
- Market information including competitors
- Customer testimonials
- Video demos of the product
- Diagrams or images of the product or service
- Links to news articles or blogs about the company (as long as they don’t include terms (#1-4 in the Terms Communication description)
- Link to the profile page on the funding portal site where the transaction is actually conducted (you should always include this not by law but common sense)
How can you disseminate a Terms or Non-Terms Communication?
Really the options are endless but some suggestions are:
- Web ads
- Email blasts
- Facebook posts
- Old media
Be wary of the media and journalists – they can get you into trouble!
If you “participate” with a news outlet or blogger in the preparation of their story, the communication will be deemed to have come from you so if the reporter mixes terms and non-terms info in the article – YOU will be in violation of the law.
- Providing a press release/press kit on a specific deal/company
- Giving an interview and providing deal specific info
- Providing specific info regarding a company
“Participate” does NOT mean
- Giving an interview or providing info about the platform and its equity crowdfunding business in general
Also, journalists and bloggers are becoming more aware of the rules and if you explain to them what they can and can’t say pursuant to the securities laws they are often willing to abide in order to get the story. Basically they just can’t mention any of the 4 terms listed under “Terms Communication.” Regardless, you don’t want some journalist or blogger to blow the deal because they crossed the streams in their article.