House Passes HALOS Act TO ADDRESS DEMO DAY SECURITIES LAW ISSUES
On Jan. 10, 2017, the U.S. House of Representatives passed the Helping Angels Lead Our Startups Act (H.R. 79). The HALOS Act, as it is known, would require the U.S. Securities and Exchange Commission to make its prohibition against general solicitations inapplicable in certain circumstances.
Currently, startups wanting to pitch their businesses in public must show that those in attendance have a relationship with the startup outside its capital raising activities, or risk running afoul of securities laws. This can be a huge burden for companies who participate in “demo days” or similar showcase events.
The HALOS Act directs the SEC to amend Regulation D of the Securities Act to make the prohibition against general solicitation inapplicable to events with specified kinds of sponsors - including angel investor groups unconnected to broker-dealers or investment advisers - where presentations or communications are made by an issuer, but:
- the advertising does not refer to any specific offering of securities by the issuer;
- the sponsor does not provide investment recommendation or advice to attendees, engage in investment negotiations with attendees, charge certain fees, or receive certain compensation; and
- no specific information regarding a securities offering is communicated beyond the type and amount of securities being offered, the amount of securities already subscribed for, and the intended use of proceeds from the offering.
The bill, which was passed last year by the House before it died in the Senate, also provides guidance on the definition of “angel investor group.” To be an angel investor group, an entity must 1) be composed of accredited investors interested in investing personal capital in early stage companies 2) hold regular meetings and have defined procedures for making investment decisions; and 3) not be affiliated with brokers, dealers or investment advisers.
The HALOS Act would provide guidance to the investor community and incorporate into regulation many issues that the SEC staff has already addressed in the form of no-action letters and Compliance and Disclosure Interpretations. Not surprisingly, the measure has broad support in the investment community, including from the Angel Capital Association.