What is an Accredited Investor for Private Placements?

Accredited investors are specific institutions and individuals defined by the SEC rules who fall within the definitions at the time of the investment. Accredited investors include directors, executive officers and general partners of the issuer or an entity in which all of the equity owners are accredited investors. The definition also includes any individual who has a net worth of, including a spouse, that exceeds $1,000,000.00 but without taking into account the value of a primary residence, or an individual […]

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SEC Rules Providing Safe Harbor for Private Placements: General Condition of Information Disclosure, Solicitation Prohibition

A second general condition in the SEC rules allowing a safe harbor for a private placement is the mandatory provision of certain information described in the rules. The information includes audited financial statements and additional non-financial information. All of the investors must receive the same information.

Although the rules are changing on this particular issue, general solicitation of investors is currently prohibited. If the issuer and investor have a prior relationship, this is generally not a problem. If investors are approached […]

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SEC Rules Providing Safe Harbor for Private Placements: General Condition of Integration

Under the SEC rules that provide a safe harbor for certain private placements, if specific requirements are met, the offering is a private placement and exempt from registration requirements. The rules provide general conditions that must be met.

The first is integration. The rules provides that sales more than six months before the start of the exempt offering, and six months after the completion of the offering will not be counted as a part of the offering at issue. This generally […]

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Integration Considerations and Number of Investors for a Private Placement

Another consideration as to whether the offering is public or private is whether the offering is part of larger offering being made, or to be made. This is called integration. In short, an issuer cannot skirt the securities laws by breaking up essentially the same offering into smaller parts done over time. Usually, unless a business is involved in making multiple offerings, the question of integration is unlikely to come up.

Of course, the more people the issuance is offered […]

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The Requirement of Access to Information in Private Placements

The requirement of access to information varies depending on the circumstances. Some courts have held that this can be done by voluntary disclosure of information or effective access to such information because of employment, family relationship, or economic bargaining power. Other courts have suggested that voluntary furnishing of information does not substitute for access.

Regardless, the type of information that must be available to an investor is similar to what would be made available by registration. Such documentation could include […]

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Sophistication of Investors for Private Placements

Sophistication is a difficult standard to nail down. The ability to fend for one’s self is ambiguous. The idea of the issue is whether the investor can understand and evaluate the nature of the risk based on the information they are provided. This may mean they must have exceptional business experience. However, previous investment experience is not generally sufficient by itself, and neither is formal education or a high income.

In requiring sophistication in the SEC rules, the SEC has […]

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The General Factors for Determining a Private Placement

In general, the determination of whether an offering is a private placement involves consideration of four factors as follows:

The number of investors and their relationship to one another and the issuer;
The number of units involved;
The size of the offering; and,
The manner of offering.


Over time, the emphasis of the consideration of factors has shifted from the number of investors to their sophistication and access to information. The idea is that the securities laws are designed to prevent fraud and unwary […]

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Private Placements for Equity Investment

Private placements are offerings of securities by a company which are private, and not generally available to the public. Such offerings are generally not subject to registration under federal securities law. The Securities and Exchange Commission (SEC) has attempted to provide guidance one what qualifies as a private placement. The SEC has adopted a series of rules which, if made in complied with the rules, provides a safe harbor for such offerings.

The posts on private placements over the next […]

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Business Financing: Term Sheets, What They Are, and Why You Need One

This last week was the Angel Capital Summit.  On the first day, several sessions provided attendees with insightful and important information about business start-up financing and issues. On the second day of the event, 26 start-up companies got a chance to pitch their companies on the attendees.  @RockiesVenture live tweeted the event, and in addition to @HWkwong @innov_news @disruptcolorado @RexasaurusRex, I (@douglasgriess) helped out as well. For the Venture Bucks portion, the 1st place winner was Trek Pak, @TrekPak, 2nd […]

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Business Financing: The Art and Complexity of Valuations, Particularly Start-Up Valuations

For the last couple of weeks, we have been looking at business finance issues, and specifically, start-up business finance issues.  We started with a summary of finance options for business – sales, debt, or equity investment.  We then tied into the #ECOops team discussion at Entrepreneur Community Online and looked at the top five investor issues when your target market is investors.  Today, we will survey issue of business valuation with an emphasis on start-up valuation.  These topics are partly […]

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