Angel Capital Association Conference Panel Thoughts

I participated in a panel discussion at the Angel Capital Association conference in San Diego today. We talked about Reg A+, general solicitation, the accredited investor definition, and other public policy ideas.

A few things came out of the talk that I wanted to share:

  • When the moderator, Mike Eckert, the Chair of the ACA's Public Policy Committee, asked the room of angel investors which angel groups participated in 506(c) offerings--there were only 2 hands that went up. Almost all angel groups are doing 506(b) offerings only these days.
  • Bill Carleton made a a few great point about 506(c) offerings:
    • In Bill's words, "There is something qualitatively different from a risk perspective in doing a 506(c) as opposed to a 506(b) offering." And I can't quote Bill for the rest of his thought, but his points were:
      •  In a 506(b) offering, an angel certifies he or she is accredited. If the company's belief that the angel is reasonable, that angel will have somewhat of a hard time arguing later that he or she wasn't accredited and is entitled to his or her money back. However, in a 506(c) offering, if the investor wants his or her money back, and claims he or she wasn't accredited--they will be able to argue, if the company didn't do the additional verification work: "The company didn't even obtain the required evidence that I was accredited. The company just took my money."
      • Bill also pointed out that once you do a 506(c), you can't fall back on 4(a)(2), which you can in a 506(b) offering.
  • Kiran Lingam also made great points about 506(c) offerings. The gist of it was--506(c) offerings are in some sense more conservative than 506(b) offerings--because at least the path to compliance in 506(c) offerings is clear. You do the additional verification work.
  • Kiran indicated that SeedInvest discovers that about 10-20% of the companies that come to SeedInvest to do a 506(b) offering can't do one--because they have already generally solicited via a press release, or Tweet or something.
  • How do you make sure you don't inadvertently turn your 506(b) offering into a 506(c)? Be careful. Don't check the box on AngelList to make your solicitation public. Don't Tweet or FaceBook post your offering. Don't issue a press release about your offering. Don't talk to reporters about your offerings.
  • Dan Rosen made the point that if you let non-accredited friends and family into a convertible note round, the fixed price round can't be a 506(c) because 506(c) offerings have to be all accredited only.

In any event, it was a fun panel discussion, and I was glad to participate.