Can I solicit investments using social media or crowdfunding?

Takeaway: While you can publicly announce that you are fundraising under SEC Rule 506(c), you are strictly prohibited from accepting investments from non-accredited investors in that offering; confusing these two concepts is a serious securities law violation.

The idea is incredibly appealing: instead of a long and difficult roadshow with venture capitalists, you use the power of the internet to raise capital directly from your community of passionate users and supporters. While this "equity crowdfunding" model does exist, it is governed by a very specific and strict set of SEC rules. A founder who simply puts a "buy our stock" button on their website is almost certainly conducting an illegal, unregistered public offering of securities.

Understanding the difference between general solicitation for a private placement and a true crowdfunding offering is critical to staying compliant.

The General Rule: No Public Offerings

The foundational rule of the Securities Act of 1933 is that any public offer or sale of a security must be registered with the SEC. A tweet, a LinkedIn post, or a website that offers anyone the opportunity to invest in your company is a public offering.

The Exception: Rule 506(c) and "General Solicitation"

The JOBS Act created an exemption that allows startups to talk publicly about their fundraising. Under Rule 506(c) of Regulation D:

  • You are permitted to "generally solicit" your offering. This means you can post on social media, issue a press release, or host a public "demo day" to let the world know that your company is raising capital.

  • However, there is a massive and critical limitation: you are only allowed to accept money from accredited investors. You must take "reasonable steps" to verify that every single person who invests in your 506(c) offering meets the SEC's definition of an accredited investor (i.e., an individual with a high net worth or income, or an institutional investor like a VC fund).

This is the standard model for most startups. They use public channels to generate interest but ultimately only sell securities to a verified list of sophisticated investors.

The True "Crowdfunding" Path: Regulation CF

A separate rule, Regulation Crowdfunding (Reg CF), allows a company to raise capital from both accredited and non-accredited investors. However, this path comes with its own strict set of rules:

  • Funding Portal Requirement: The offering must be conducted through an SEC-registered funding portal or a broker-dealer. You cannot do it directly on your own website.

  • Funding Limits: A company can only raise a maximum of $5 million through a Reg CF offering in any 12-month period.

  • Disclosure Requirements: You must file a formal document (a Form C) with the SEC that includes detailed disclosures about your business and financial condition.

For a typical high-growth, venture-track startup, the standard and most efficient path is the Rule 506(c) private placement. While Reg CF is a powerful tool for certain types of consumer-facing businesses, the funding limits and compliance overhead make it a less common choice for startups seeking to raise a large venture round. Do not confuse the two; a "do-it-yourself" public crowdfund is a recipe for a serious securities law violation.

Disclaimer: This post is for general informational purposes only and does not constitute legal, tax, or financial advice. Reading or relying on this content does not create an attorney–client relationship. Every startup’s situation is unique, and you should consult qualified legal or tax professionals before making decisions that may affect your business.