Could Demo Days get hooked in SEC's new rules net?

Photo: Cromwell Schubarth

Proposed new rules by the SEC could change the way that Demo Days pitch marathons are done in the future.

Sponsored Links
	2014 Fed Budget Insights Free report summary: Find federal dollars in FY14 budget request. GovWin.com/2014-Fed-Report
	LL.M. in Taxation Online from BU Law Boston University’s top-ranked graduate tax program is now available online. landing.onlinetaxllm.bu.edu
Get Listed Here

Cromwell Schubarth: Senior Technology Reporter- Silicon Valley Business Journal; Email | Twitter | Google+

Demo Days — the popular pitch marathons that serve as startup accelerator graduation ceremonies — could be in trouble if new fundraising rules proposed by the Securities and Exchange Commission go into effect.
Few in Silicon Valley want to speak that fear aloud, worried that it would only draw regulators' attention to the fact that some of the popular events may have technically been violating rules against general solicitation for years.
The SEC has looked the other way until now and could choose to continue to do so in the future.
But if is doesn't here are a few of the changes proposed by the SEC that could affect Demo Day events in the future:
Documentation that attendees are "accredited investors": Some accelerators like Y Combinator take pains to make sure that the limited number of seats at its Demo Days are filled by people who meet the SEC's definition of an accredited investor (except for the many media types like me who are there to report, not to invest). This generally means they have annual income of over $200,000 or a liquid net worth of $1 million. Many, however, only require attendees to check off a box on a form that says they meet that qualification. The SEC may not accept that in the future. Some event organizers even let anybody that buys a ticket attend "the show." That sounds like the very definition of a general solicitation, doesn't it?
Filing a Form D with the SEC 15 days before making a pitch at Demo Day: This one is connected to the previous requirement. The SEC wants any business to make a written filing 15 days before it makes a general solicitation. It also proposed that any changes made in a pitch be recorded and filed and that another filing be made no more than 15 days after fundraising is completed. It's hard to imagine the agency will be able to handle the avalanche of documents that this would bring from the 10,000 or so new startups that are hatched in the U.S. annually. But that's what the agency's new idea could mean, if enacted as written.