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Pitching to Angel Groups
You might wonder, do companies engage in general solicitation if they pitch to an angel group? The SEC has provided specific guidance around angel groups and how they can facilitate companies meeting angels without triggering the general solicitation rules:*
Question: Are there circumstances under which an issuer, or a person acting on the issuer’s behalf, can communicate information about an offering to persons with whom it does not have a pre-existing, substantive relationship without having that information deemed a general solicitation?
Answer: Yes. The staff is aware of long-standing practices where issuers and persons acting on their behalf are introduced to prospective investors who are members of an informal, personal network of individuals with experience investing in private offerings. For example, we acknowledge that groups of experienced, sophisticated investors, such as “angel investors,” share information about offerings through their network and members who have a relationship with a particular issuer may introduce that issuer to other members. Issuers that contact one or more experienced, sophisticated members of the group through this type of referral may be able to rely on those members’ network to establish a reasonable belief that other offerees in the network have the necessary financial experience and sophistication. Whether there has been a general solicitation is a fact-specific determination. In general, the greater the number of persons without financial experience, sophistication or any prior personal or business relationship with the issuer that are contacted by an issuer or persons acting on its behalf through impersonal, non-selective means of communication, the more likely the communications are part of a general solicitation. [August 6, 2015]
Pitching Outside of Angel Groups
Many startup incubators and accelerators have demo day events in which friends and supporters of the startups as well as angel investors are invited to attend. At these and similar events, entrepreneurs will pitch their startup but not disclose any fundraising terms—because not everyone in the audience is an accredited investor, they want to stay within Rule 506(b) guidelines and avoid any general solicitation. By including deal terms in their pitch, like, “We’re raising $500K at a $3M valuation,” they could be deemed to be soliciting the audience and thereby engaging in general solicitation. The SEC has issued rules with respect to demo days.
Disclosure of Investment
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.