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Back to basics: General Solicitation: Other bad ideas

Paul Clark
Paul Clark
Last updated: January 17, 2024
Venture south fallback

Other things you cannot do:

Regardless of the fundraising rules you choose to operate under, there are a few things that you absolutely cannot do when selling securities. Here are a few:

  • Say that anything is “risk-free” or “guaranteed”.

  • You can provide facts (like the security is secured against the assets of the company) but subjective language, especially about risk, is dangerous. An attorney ought to review all your securities offering documents, and your advertising, press releases, and anything else you release before they become public, to make sure the risks are described reasonably.

  • Provide any kind of advice or recommendations, like telling a potential investor that this security is a suitable one for its situation.

  • Generally speaking, pay other people to raise money for you. You can if (a) the payment is a flat fee paid regardless of how much is raised (e.g. paying a PR firm to write press releases if you are doing a 506(c)) or (b) the payment is to a registered broker-deal, because they are allowed (after a thorough licensing process) to receive commission for selling securities. No-one else can. One of things you have to attest to in most deals is that you didn’t pay anyone - so don’t.

  • Lie, mislead, exaggerate, deceive, don’t intend to return the investment some day, …

Hopefully some of that is fairly obvious!