The SEC confirmed its highly anticipated regulations following the 2012 Jumpstart Our Business Startups (JOBS) Act. The new rules lifted the ban on general solicitation and general advertising for certain private securities offerings and were aimed at helping companies raise profit more economically and proficiently by using websites, blogs, e-mail blasts, social media, and other communication channels to advertise their investment prospects.

The new rules although advantageous for many do have a few drawbacks that affect demo days and other similar events.
Rules 506(b) and Rule 506(c): Two options for Raising Capital in a Private Offering

Previously known as Rule 506 of Regulation D, Rule 506(b) allows companies to sell an unrestricted amount of securities in a private offering as long as they do not use general solicitation or general advertising.

Under new Rule 506(c) companies can now use general solicitation or advertising so long as they take "reasonable steps" to validate that purchasers are accredited investors.

What you need to know about the new rules:

1. The "accredited status" stipulation could be a problem for companies or funds that wish to sell securities to a minimal amount of non-accredited investors.
2. The need to screen potential investors for accredited status adds expense for issuers and places an encumbrance on investors.
3. For companies that use general solicitation to their advantage, proposed regulations could impose additional burdens on them as well as various confidentiality concerns.

How does the new rule impact demo days?

There is a false impression that under these new regulations, events like demo days, pitch events, angel group meetings and business plan competitions now constitute general solicitation. However, the declared regulations did not change the definition of general solicitation and general advertising. What has changed, though, is that some participants may wish to take advantage of Rule 506(c) by inviting the general public to attend these events and actively solicit investors.

Consider the Pros and Cons

The advantages and disadvantages of general solicitation should be carefully weighed by companies to decide if it is something that would be a benefit to the business.