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Could you please help me evaluate a legal question? The SEC regulates the way that private companies who are raising capital conduct their offerings. This includes those raising under Regulation Crowdfunding. I believe that there are some rules about conducting a "demo day" or live pitch event where issuers share their stories in front of investors, live or virtually. One rule I've heard is that a nonprofit should host the event. Colleges and nonprofit accelerators are obvious candidates. Can for-profit media companies host live-pitch-style events legally? If so, what are the rules?

The Securities and Exchange Commission (SEC) does indeed regulate the conduct of private companies when they are raising capital, including offerings under Regulation Crowdfunding. The rules around conducting "demo days" or live pitch events where issuers present to potential investors have specific guidelines designed to prevent these events from being considered "general solicitation," which is restricted under certain circumstances.

The specific rule that governs these events is part of Regulation Crowdfunding and the broader regulations concerning private securities offerings:

1. Role of the Host: Traditionally, demo days or similar events are hosted by colleges, universities, non-profit organizations, or incubators/accelerators without a financial interest in the offerings being presented. This setup helps ensure that the event's primary purpose isn't to advertise or sell securities, which could be construed as general solicitation.

2. For-profit Entities Hosting: For-profit entities, including media companies, can host such pitch events. However, the SEC released amendments in March 2021, clarifying and expanding the scope of permissible activities at such events. According to the amendment, issuers can speak at events sponsored by "a college, university, or other institution of higher education, a state or local government or instrumentality of a state or local government, a nonprofit organization, or an angel investor group, incubator, or accelerator." Importantly, the amendment also includes provisions for "a potential host that is neither issuing nor selling securities in connection with the event," which could include for-profit entities under certain conditions.

3. Conditions for For-profit Hosts:

   - No Financial Interest: For-profit hosts should not have a financial interest in the issuers presenting at the event. This means they should not receive compensation based on investment commitments or the outcomes of the securities offerings presented.

   - Event Restrictions: The events should be related to the host’s stated mission or purpose if it's an organization, and the host cannot make investment recommendations or provide investment advice.

   - Communications Restrictions: Issuers can generally discuss the terms of the offering and include a factual business description of their company, but they must avoid "conditioning the market." This includes not engaging in hype or overly promotional language about the securities being offered.

4. Disclosure Requirements: If for-profit media companies host such events, they should ensure that issuers follow the disclosure requirements under Regulation Crowdfunding, including providing information about the offering on a platform that meets the requirements for such offerings.

To ensure compliance, it's advisable for for-profit media companies to consult with legal experts who specialize in securities law and the specific regulations of Regulation Crowdfunding. This will help avoid any potential violations that could arise from hosting such an event.

1 Answer, 2 Replies
Jenny Kassan
May 25,
Jenny Kassan  replied:

There is a federal exemption for Demo Days but it is useless because it doesn't preempt state law. To legally do a demo day where the public is invited, even if the event fits under the Demo Day exemption, it will still be illegal to do public solicitation under state law (unless the offering is being done under Reg CF or Rule 506(c) in which case there is federal preemption).

Devin Thorpe
May 26,
Devin Thorpe  replied:

So, if all the issuers pitching are offering securities under Reg CF, everything is OK?

Jenny Kassan
May 26,
Jenny Kassan  replied:

Yes, as long as they don't mention any of the 6 items that are considered "terms" of the offering under the regulations.