Ban on General Solicitations is Creating Opportunity for Funding Portals

With the final changes on Rule 506 being issued, opportunities have been created for those looking to capitalize on them.  As with any change there is a first mover advantage for companies and individuals that move quickly. The general solicitations ban is creating most definitely opportunity.

The SEC lifted the advertising ban on general solicitations pursuant to Rule 506 of Reg D.

While lifting the ban they did make one thing clear – Accredited Investors are the only ones able to participate in the private offering.  Advertisements need to make this disclosure and firms need to verify the accreditation status of each investor.

In order for an investment firm to realize the most benefit from the advertising ban being lifted, they need to have an aggressive online strategy.  People use the internet to search for information on a daily basis.  Most will use it to research a concept or idea prior to making a decision.  Traditional investment firms and broker dealers have had to stay clear from advertising too much online or becoming an open knowledge center, simply for risk of violating Reg D.  This puts them at a clear disadvantage in the online space.  It has, however, created a unique opportunity for funding portals.  Online sites that provide information to Accredited Investors, facilitate deal flow, and connect investors with broker dealers and investment firms have the most to benefit.  By being able to directly advertise private offerings, these portals can negotiate contracts and partnerships with investment firms.

Funding portals, that already have an online presence, can increase their efforts by providing additional information on individual investment opportunities.  They can put up blogs pertaining to specific industries, legislation changes, and more.  The more people that visit a funding portal, the more benefit to a broker dealer or investment firm.

Changes to Rule 506 make it possible to use:

  • Google AdWords.  A targeted AdWords campaign can draw people to the portal that are interested in investing in certain industries.
  • Social Media.  Facebook, Twitter, Pinterest and more can be used to spread the word about the latest and greatest investment opportunities.
  • Affiliate Programs.  Bloggers and webmasters can advertise and promote portals through carefully placed ads and content on their site.
  • Email Campaigns.  Companies can use an existing email database to send information on individual investment opportunities.

The challenge with mass advertising is the ability to get in front of the demographic that can invest with you.  According to the SEC changes only Accredited Investors may invest in private offerings issued under Rule 506.  This means that many people will be exposed, but unable to participate, in your offerings.  A lead list of Accredited Investors is still a good start to any marketing campaign as you can contact them via the phone, ask for their email and address, then build your own advertising database.

For now we will wait to see what partnerships are established between funding portals and investment firms.  Several broker dealers and investment companies will rise to the top, taking advantage of the new changes to Rule 506.  The only question is, which ones?

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