As part of the updates on private placements, the Securities and Exchange Commission granted a no-action letter to Citizen VC, an online venture capital firm. The main question was whether the firm was creating “substantive, pre-existing relationships” with prospective investors through its website. The firm wanted to avoid a result that its offers & sales under Rule 506(b) would be considered general solicitation or general advertising under Rule 502(c) of Regulation D.
For CitizenVC the first step is a generic online “accredited investor” questionnaire.
That moves into the “relationship establishment period.” During that period CitizensVC may
- Contact the prospective investor by telephone to discuss the prospective investor’s investing experience and sophistication, investment goals and strategies, financial suitability, risk awareness, and other topics designed to assist CitizenVC in understanding the investor’s sophistication
- Send an introductory email to the prospective investor.
- Contact the prospective investor online to answer questions they may have about CitizenVC, the Site, and potential investments.
- Utilize third party credit reporting services to confirm the prospective investor’s identity, and to gather additional financial information and credit history information to support the prospective investor’s suitability.
- Encourage the prospective investor to explore the Site and ask questions about the Manager’s investment strategy, philosophy, and objectives.
- Generally foster interactions both online and offline between the prospective investor and CitizenVC.
Maybe it’s just me, but only 1 and 3 seem particularly meaningful and substantive. But the rest don’t hurt. Apparently it is enough to create a “substantive, pre-existing relationship” once the potential member is admitted as a member. A prospective Member is not presented with any investment opportunity when being qualified to join the platform.
I found it more meaningful that the minimum capital investment requirement is not less than $50,000 per deal. That means they are not targeting small investors.
Sources:
- Citizen VC, Inc. No Action Letter August 6, 2015
- Incoming Request Letter rom Citizen VC
- CitizenVC No Action Letter Gives Guidance for Online Private Placements by Chip Phinney in Mintz Levin’s Securities Matters
- General Solicitation & Reg D: Corp Fin Issues 12 New CDIs (& a No-Action Letter) in Corporate Counsel .net
- Updates on private placements