The offering of a private placement is full of regulations, laws and rules that often get overlooked or misunderstood, particularly when a business is doing the work in-house. These oversights and mistakes include:
* Using wide reaching communication channels to advertise the offering – Whether it’s done through radio, television, print or social media, advertising a private placement is a big “no-no”. Information dispatched through these channels is considered to be a general solicitation where the audience that receives it will likely have no pre-existing relationship with the company that is doing the offering.
* Soliciting to non-accredited investors – Due to the high level of risk that accompanies private placement investing, soliciting the offering to investors who don’t meet the benchmarks for accreditation is not permitted. These benchmarks include a $1 million dollar net worth, $200,000 in annual income, or a demonstrated level of sophistication related to high risk investments.
* Soliciting investments from targeted demographic groups – While the owners of Gulfstream jets will most likely meet the standards set for accredited investors, a mass communication to high net worth investors is still considered to be a general solicitation.
* Using unregistered finders to solicit investors – While the laws here are somewhat murky, the most stringent interpretation of employing an unregistered finder allows for the rescission of any investment obtained through an unregistered person who is paid a commission or fee based on the amount invested.
Before starting a private placement offering, get to know the regulations that relate to the solicitation of investment. While these rules may make raising capital more difficult, this knowledge will give you a lot less to worry about when the private placement is completed.