A VC Firm Tests the Limits of the New General Solicitation Ruleby
Back in July, the Securities and Exchange Commission passed rules that eased 80-year-old limits on how startups, venture capital firms, and other private investment vehicles can market themselves to investors. The general solicitation rules took effect on Sept. 23, and while there’s still plenty of uncertainty, the basic gist for startups and investment firms is this: They can publicize their fundraising efforts broadly, but they can only accept money from accredited investors.
So far, the biggest development to follow from the new rules for early-stage entrepreneurs has been the rise of so-called online syndicates, a way for angel investors to pool money from other investors. Now, New York-based venture capital firm ff Venture Capital is getting in on the (JOBS) Act.
Partner John Frankel writes that ffVC is the “first institutional venture capital firm” to publicly announce that it’s raising capital in a blog post this morning that touts his firm’s past performance and invites accredited investors to e-mail for more information.
That news isn’t entirely surprising: Back in July, Frankel promised to use the new rules to speak openly about the advantages in investing with small venture capital funds like his own. More interesting is the form that the solicitation takes. Frankel spends much of his blog post talking about the changes coming to the “hugely antiquated” venture fundraising model, and how the brave new world with general solicitation is going to be good for smaller firms:
But what about venture capital firms, and why have smaller firms found it so challenging to raise capital? While it may be true that some can be unproven, have little or no track record, and often have little infrastructure, we believe that the biggest reason has been, until now, the age-old SEC ban on general solicitation. The ban has long hindered funds and firms from letting anyone know that they are raising capital, and from sharing their historical performance, infrastructure, and capabilities. As a result, capital has flowed to players with brand and ego, based on tales around pretty much anything other than return on capital (or even return of capital).
Frankel’s blog post doesn’t spend much time describing what investors can expect to get for their money, beyond claiming that ffVC has “consistently generated a gross IRR on invested capital in excess of 30 percent” and noting plans to close the new fund before the end of November. That may be clever marketing, allowing ffVC to cast itself as an innovator for using general solicitation first, while limiting its exposure to SEC regulators who have yet to show how they will police the finer points of general solicitations. (The SEC didn’t immediately respond to a request for comment.)
For her part, ffVC spokeswoman Aishwarya Iyer didn’t directly answer when asked if the firm was feeling out regulators with this first solicitation, but did share more details on the firm’s new fund. The firm began fundraising in November and expected to close the $50 million to $70 million fund without the help of general solicitation, she writes in an e-mail. Frankel decided to publish today’s notice as a way of “stepping forward in the community to show that a good, reputable firm, albeit a small one, with strong returns can generally solicit,” she writes.