By Jim Verdonik
I'm an attorney with Ward and Smith PA . I also write a column about business and law for American Business Journals, have authored multiple books and teach an eLearning course for entrepreneurs. You can reach me at JFV@WardandSmith.com or JimV@eLearnSuccess.com. Or you can check out my eLearning course at http://www.elearnsuccess.com/start.aspx?menuid=3075 or http://www.youtube.com/user/eLearnSuccessor or you can purchase my books at http://www.amazon.com/Jim-Verdonik/e/B0040GUBRW
Have you ever seen a cartoon where the character who is sitting on a tree limb saws off the part of the limb between him and the tree trunk?Sometimes the tree limb and the cartoon character fall with a big crash.
But in another version of the same branch-sawing situation, the entire tree trunk falls and the cartoon character and the tree limb remain safely suspended in thin air.Let's talk about how you avoid using new SEC Rule 506 (c)'s advertising and general solicitation provisions to saw off the tree limb you are sitting on.
Before we begin talking about Rule 506(c) and advertising, let me ask which type person are you:
- The optimist who thinks the whole tree trunk will fall down while you remain safely perched on your branch?
- Or are you a pessimist who always worries that the laws of gravity will crash you to earth as soon as you saw off the branch you are sitting on?
I ask these questions, because once you start using Rule 506 (c) to advertise or conduct a general solicitation, you will cut yourself off from the ability to raise capital using many other private placement exemptions – at least for a while. If for any reason your advertising campaign doesn't help you raise the capital you need to survive and grow, you'll crash to earth like that cartoon character, unless you have a back-up plan that suspends the laws of gravity.
So, if you decide to advertise, understand that you are gambling. Like all other bets, you win some and you lose others.
Now, let's start exploring what happens if you lose your SEC Rule 506 (c) advertising bet.