Disclosure of Investment

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Updated August 29, 2023
Angel Investing

You’re reading an excerpt of Angel Investing: Start to Finish, a book by Joe Wallin and Pete Baltaxe. It is the most comprehensive practical and legal guide available, written to help investors and entrepreneurs avoid making expensive mistakes. Purchase the book to support the authors and the ad-free Holloway reading experience. You get instant digital access, commentary and future updates, and a high-quality PDF download.

In general, the law does not require that private companies disclose the names of their owners or investors, with the exception of what is required to be disclosed on the SEC’s Form D.*

If you accept a board seat, or if you become an executive officer of a company, the fact that you are a member of the board or an executive officer of a company may be disclosed on the Form D the company files with the SEC. Companies are required to file the Form D with the SEC when they raise money in a Rule 506 offering, and they are required to list on the Form D the directors and executive officers of the company. You can review the Form D from the SEC. Filed Forms D are publicly available on the internet, and many media outlets watch these filings so that they can report any interesting news.

caution Though they are not required to do so, a company may want to issue a press release or otherwise publicly disclose the fact that it has closed its investment round, and in those releases, the company may want to disclose the names of its investors. If you do not want your name disclosed in this process, you should take special care to require the company to agree to keep your name confidential.

What To Watch Out For

danger A few important pitfalls when it comes to securities law and fundraising:

  • Make sure the company is complying with the law in regard to its fundraising. When you are evaluating a company, you should make sure the company is following the rules of whichever securities law compliance path it chose.

    For example, if the company is telling you that it is conducting a Rule 506(b) offering, but it is advertising its securities offerings on its website, that is a red flag. It means that the company is not complying with the law. The company may not be getting good legal advice, which is a signal that other things might be amiss as well.

  • While you’re investigating the company’s fundraising history, note that many angel investors are leery of companies that have crowdfunded or taken money from friends and family, partly because there may be a large number of non-accredited and potentially naïve investors on the cap table, which can complicate future fundraising.

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