Opinion: The Helping Angels Lead Our Startups (HALOS) Act Can Clarify Demo Day Concerns for Startups

Photo: Tyler Seville is director of technology and workforce development at the NJBIA. Photo Credit: Courtesy NJBIA
Tyler Seville is director of technology and workforce development at the NJBIA. | Courtesy NJBIA

While the 2012 Jumpstart our Business Startups (JOBS) Act has finally gone into effect, organizations have already brought up concerns about the Securities and Exchange Commission’s (SEC) regulations associated with the law, and a legislative fix has been introduced.

The affected ecosystem actors: startups who wish to show off their new products to investors at “demo days.” The SEC requires startups that use general solicitations to raise capital to verify that those who purchase their securities are bona fide accredited investors (see regulation D 506(c)).

The problem is “demo days” can be considered “general solicitations” for capital under current SEC regulations, but startups have no way of vetting attendees and therefore cannot verify that everyone there is an accredited investor.

Demo days allow startup founders to meet and exchange ideas with potential future investors, peer entrepreneurs and business experts who may become mentors. To avoid unnecessarily putting entrepreneurs at risk of regulatory violation and discouraging potential investors from participating in demo days, Congressman Steven Chabot (R-Ohio) introduced the Helping Angels Lead Our Startups (HALOS) Act. The bill seeks to give both entrepreneurs and investors more certainty.

Specifically, HALOS clarifies the SEC definition of general solicitation to ensure startups may participate in educational demo days without having to verify that attendees are accredited investors.

The HALOS (Help Angels Lead Our Startups) Act, isn’t the only piece of legislation aiming to increase the amount of money available to entrepreneurs as they start and scale new businesses. Last week, the House Committee on Financial Services examined the current competitiveness of U.S. capital markets and regulatory burdens impact capital formation, job creation and economic growth.

The three specific proposals under review are:

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