Trying to figure out how many investors might want to fund your small business? Go ahead and tweet about it.
Startups are now able to post a Twitter message about their stock or debt offering to gauge interest among potential investors, the U.S. Securities and Exchange Commission said this week. The announcement continues the SEC’s trend of warming up to social media, which began two years ago when it approved the use of posts on Facebook and Twitter to communicate corporate announcements such as earnings.
“It’s a brave new world,” said Joe Wallin, a Seattle-based attorney who advises startups at Carney Badley Spellman. “The way securities have been distributed and sold has never involved a lot of media.”
The SEC’s latest endorsement of social media only applies to companies looking to raise as much as $50 million a year. New small-business fundraising rules were approved in March, which increased the limit for capital raised to $50 million from $5 million to enjoy the perk of fewer required disclosures. The changes were required under the 2012 Jumpstart Our Business Startups Act, which deregulated fundraising rules for small businesses.
Firms that use Twitter to solicit investor interest must include a link to a required disclaimer that says the firm isn’t yet selling securities, the SEC said in this week’s announcement.
It’s not clear how many companies will take advantage of the higher fundraising cap. Fewer than 30 offerings were made from 2012 to 2014, when the limit was $5 million, according to the SEC.
The SEC said in April 2013 that companies could use Twitter or Facebook to make big announcements as long as investors were told in advance to look there. The SEC’s decision was prompted by Netflix Inc. Chief Executive Officer Reed Hastings, who posted information about his company’s monthly viewers on his Facebook page rather than in an SEC filing.