The U.S. Securities and Exchange Commission has reportedly moved to lift a ban concerning how hedge-funds, venture capitalists, and start-ups go about raising funds.
In a 4-to-1 vote, the SEC decision implements a stipulation in the Jumpstart Our Business Startups (JOBS) Act, which actually removes a ban on advertising fundraising efforts ahead of going public.
This could significantly change how many startups and other private companies do business going forward -- especially in the technology industry.
Enterprise startups like Workday and Marin Software have experienced a great deal of success by going public in the last year, but consumer tech IPOs haven't nearly been as lucky.
Unfortunately, the catch has been that in order to raise more money, many of these companies likely felt like they had to move towards operating as a public company in order to actually publicize that they were soliciting funds.
Now, we could end up seeing many tech startups and the VCs attached to them maintain private operations while advertising to raise capital.
But some analysts are approaching this move with caution.
Jennifer Openshaw, president of financial services online network Finect, explained via email that the removal of a ban needs to be filled in with protections and other rules before things get out of hand. Here's more:
Small companies benefit by being able to raise money more easily under the new rules. But history has shown that consumers can be misled and exploited if steps aren’t taken to guard their interests. It’s all the more important to be vigilant against bad actors. More information will now be accessible to investors through the use of social media, and the ability of bad actors to pursue unaccredited, unsophisticated investors will grow.