For established VCs, it’ll make it easier to talk about new funds, though there won’t necessarily be much change in how capital gets raised. For emerging managers seeking to close new funds, it should make life a little easier. And for startup entrepreneurs, it could offer an additional avenue for raising capital from accredited investors, particularly at the seed stage.
Those are some of the takeaways from venture industry insiders in the wake of Wednesday’s ruling by the Securities and Exchange Commission allowing issuers to advertise and speak publicly about private placements.
Under the new rules, partners raising new funds will be able to advertise and discuss funds with anyone. However, they still can only sell stakes to accredited investors. For that reason, it remains unclear what value firms will see from the regulatory shift.
“You can solicit to the world. But you have to make sure to a reasonable standard the people (who invest) really are accredited investors,” says Mitchell Littman, a partner at law firm Littman Krooks, who specializes in private placements. Littman predicts that smaller and less experienced fund managers will be the ones most likely to make efforts to publicly promote offerings.
Established venture firms, meanwhile, are more likely to stick to limited partners with whom they already have an existing relationship, says Mark Heesen, president of the National Venture Capital Association. He says he does not expect the rule change to have a significant impact on the venture industry overall, though it may be particularly useful for newer funds seeking fresh capital.
Attorneys at law firm Goodwin Procter, however, say the new rules are expected to “materially change the fundraising landscape for the private fund industry, and will facilitate use of the Internet and traditional press as means to communicate information about offerings of fund interests.”
In an analysis on the law firm’s website, attorneys predict that for many private fund managers, the new rule “will substantially increase the scope of permitted fundraising activities.”
Even for those fund managers who do not conduct a general solicitation in connection with their fundraising activities, attorneys say, it will make it easier to communicate about their activities. Previously, partners in fundraising mode had to be especially cautious about any public statements regarding their new funds for fear of violating SEC rules. Now, they’re permitted to talk.
For more analysis of the SEC ruling, VCJ subscribers can click here.
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