July 12, 2013

What SEC's New General Solicitation Rule Means for Breweries

Breweries and other small businesses face a lot of red tape when it comes to raising capital.  On Wednesday, the SEC cut through some of the tape when it lifted its 80-year ban on general solicitation for private offerings.  

What it Means: Finding Accredited Investors Just Got Easier

Breweries seeking to raise capital have two options: finance through debt or sale of equity.  In today's tough lending environment, often breweries are required finance operations by selling equity in the company.  Currently, only high net worth individuals (with some minor exceptions) are allowed to purchase equity in small businesses like breweries.  This is a problem for two reasons.  First, the pool of accredited investors in the U.S. is only 8 million. Second, securities laws have long prohibited breweries and other small businesses from advertising their private offering.  This means that breweries have had to go through a pain- staking process of establishing "substantial relationship" with any potential accredited investor.  The result is that breweries and other small businesses have not been able to cast a very wide net for potential investors.  Indeed, of the 8 million accredited investors out there, only 3% are active.  

The bottom line: the ability to advertise an offering will make it easier for breweries and accredited investors to find eachother.  

What it Does Not Mean

First, the new rule does NOT make general solictiation legal today.  The rule will not be effective until September 10 and companies must avoid jumping the gun.  Second, the new rule should not be confused with another (and perhaps most talked about) provision of the JOBS Act that will allow for the general public (regardless of net worth) to invest online in breweries and other small businesses.  The SEC still needs to pass separate rules that make it legal to sell shares to the general public.  Even when this happens, companies will still not be able to advertise offerings to the general public in the same manner as they soon can with accredited investors.  

The bottom line: breweries are currently still limited to raising capital from accredited investors and will only be able to do so through general solicitation once SEC rule becomes effective around September 10.  

What it Means for CraftFund

Our initial intention was to wait until everyone is able to invest before launching an investment platform.  That's where the true disruption will come, when the average beer drinker will have a chance to invest in his or her favorite brands. We're particularly excited about seeing breweries lead the way in this democratization of capital.  However, our company exists to help grow the craft category and the new SEC rule should do just that. The lifting of the ban on general solicitation is a good thing for breweries in planning and breweries seeking to expand.  Moreover, there is really no telling when equity crowdfunding for general public will become legal. Therefore, we are digesting the newest rule with the intent of very soon launching a platform to connect breweries with accredited investors while we wait on equity crowdfunding for general public.  Stay tuned!  


  • ggulley

    "Currently, only high net worth individuals (with some minor exceptions) are allowed to purchase equity in small businesses like breweries." is not a true statement at all. Anyone can invest, however there is a limit of 35 non-accredited investors and unlimited accredited investors but there are safe harbor rules to get around that limit as well.


    July 12, 2013 at 2:21PM CST

  • David D.

    Thanks for the response. You are right that technically up to 35 non accredited investors are allowed to invest in a Reg D offering. You are also right that there are other exemptions such as 504 that make it possible for non accredited investors to invest in private companies. That is why we included the caveat "with some minor exceptions." However, in all of these circumstances the burden of including non accredited investors is costly (very detailed disclosures for Reg D, state by state rules for 504). Can you do it? Yes. Is it practical? Often not.

    July 12, 2013 at 9:38PM CST

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