When a startup is raising capital via either debt or equity methods, there are a number of legal, financial, and strategic considerations to keep in mind. Although shows like Shark Tank may have you believe otherwise, it is not as easy as saying "here is 10% of my company in exchange for $100,000." In order for your capital raise to remain legal, it must either adhere to SEC regulations for a registered securities offering, or be exempt from such registration. For most startups, it makes sense to structure a capital raise in a way that classifies it as exempt from SEC registration.
One of the ways to go about this is to meet the standards set forth for exemption under Regulation D Rule 506(c) of the Securities Act. The advantages to this type of private securities offering are extensive. Most importantly, the startup is permitted to advertise the offering to the general public via media channels including television, newspaper, and internet (including social media). Solicitation of a startup offering via email through a database such as The Syntiq Investor Database is also permissible under this exemption.
Although the ads may be targeted and seen by anyone, only accredited investors may actually invest in the startup. The qualifications for accredited investor status change from time to time and they are defined by SEC Rule 501. As it currently stands (June '15), an accredited individual investor is someone who has a net worth equal to or greater than $1MM (not including primary residence) and individual income of $200,000 or greater. There are additional qualifications for an institution to earn accredited status under Rule 501.
Ultimately it is the responsibility of the startup to verify each potential investor as accredited prior to accepting and funds in exchange for either debt of equity. The intention behind this rule is to protect unsophisticated investors from placing their savings into risky ventures where they may not fully understand the risks involved.
Therefore, under Regulation D Rule 506(c), startups can now advertise their offerings via a wide array of media channels. However, the startup should have a plan in place to verify the accredited status of investors in order to avoid securities violations and the potential for costly lawsuits.
This is not meant as legal, financial, or professional advice. Consult with your attorney and financial advisor before acting on any information you read on this site.