Connect with us

Hi, what are you looking for?

The American GeniusThe American Genius

Business Finance

Startup community speaks out against new SEC rules

The SEC is seeking feedback on rules that will go into place next month, and the angel investing community says the rules will hurt startups.

facebook dislike


SEC changes the rules, one group says it will hurt startups

The good news: On September 23rd, startups will be allowed to expand beyond only seeking investor donations privately and can officially begin publicly raising money from accredited investors.

The caveat: a new crop of Securities and Exchange Commission (SEC) fundraising rules may hurt startup companies’ chances of obtaining said investor funding regardless of if a mistake is intentional or not.

Under the new rules, in order for a startup to publicly fundraise, it must do the following:

  • Notify the SEC 15 days before they publicly discuss raising money
  • File documents with the SEC each time that the company updates their offering materials
  • Include a legal boilerplate each time the company talks about their financing publicly

The SEC asserts this is for transparency

The SEC states that it has enacted these rules so that it can properly monitor these transactions and to ensure that companies are being truthful when representing their financials to potential investors – which is understandable. But what has many critics in an uproar is the fact that a startup that happens to slip up one these rules can face up to a one year ban during which they are restricted from fundraising.

Restricting a business from obtaining capital for an entire year is hugely detrimental to profitability and can cause numerous businesses to go under if they don’t have alternative funding sources. The rules may seem easy enough, but having to repeatedly file new documents with the SEC each time that an update is made, and give two weeks advance notice before speaking with an investor isn’t realistic in the business world.

Business owners can’t control when they will come into contact with a certain investor or happen upon an opportunity that requires a quick response, and banning businesses from having a conversation in real-time is extremely restrictive. Although the rules do serve a purpose, they can also hurt the success rate of entrepreneurs looking to expand beyond private fundraising.

Advertisement. Scroll to continue reading.

SEC is seeking feedback: this is where you come in

The SEC is currently asking for feedback on its proposed rules and several groups have come together to express their concerns and suggest alternatives such as asking the SEC to permit a third party organization like Angel List to take care of any necessary filing on behalf of startups. Although the clock is winding down for feedback, there are still 10 days left to provide comments.

To comment to the SEC either in support or criticism of the new rules, you’ll find instructions here.

Destiny Bennett is a journalist who has earned double communications' degrees in Journalism and Public Relations, as well as a certification in Business from The University of Texas at Austin. She has written stories for AustinWoman Magazine as well as various University of Texas publications and enjoys the art of telling a story. Her interests include finance, technology, social media...and watching HGTV religiously.

1 Comment

1 Comment

  1. Tinu

    August 23, 2013 at 11:29 am

    Thanks for this Destiny. I remember when some of these laws used to Help commerce…

Leave a Reply

Your email address will not be published. Required fields are marked *


American Genius
news neatly in your inbox

Subscribe to our mailing list for news sent straight to your email inbox.



Opinion Editorials

(SOCIAL MEDIA) Musk is far from meager when it comes to business. After buying an almost 10% stake in Twitter, he declined board status,...

Tech News

(TECH NEWS) Why is the most funded game in history still in development and has no clear release date? Why crowdfunding as a concept...

Business Finance

(TECH NEWS) Crowdfunding has become ripe for scams, don't be a sucker -- here's how to spot 'em.

Business Finance

(FINANCE) If you're trying to decide where to start your business, consider this year's rankings for most active angel investor groups.


The American Genius is a strong news voice in the entrepreneur and tech world, offering meaningful, concise insight into emerging technologies, the digital economy, best practices, and a shifting business culture. We refuse to publish fluff, and our readers rely on us for inspiring action. Copyright © 2005-2022, The American Genius, LLC.