Set aside, for the moment, the proposed rules that would impose pre-offering Form D filing requirements, information filing requirements, and other burdens that would make Rule 506(c) more of a burden than a benefit in the angel financing world.
It does seem likely that, come September 23, 506(c) will – at least for a time – go into effect as Congress intended it.
Startups and emerging companies will be able to "generally solicit" investors and such offerings will be exempt under Reg D, as long as all purchasers are (a) accredited, and (b) the companies raising the money take reasonable steps to verify that such purchasers are accredited.
Much of the discussion of what constitutes "verification" (this burden was imposed by Congress, not the SEC) defaults to certain non-exclusive, non-mandatory verification methods set out in the final rule establishing Rule 506(c). These methods are expensive, raise privacy problems, and are not practical for startups. The burden of following these methods is exacerbated at the seed stage.
But startups needn't despair.
In essence, the ACA is helping to educate the ecosystem regarding just how much an an issuer knows about a given purchaser, by virtue of that purchaser's membership in an "Established Angel Group." And that term is defined in the guidance.
Why is that important? Because the verification rule involves an assessment of the nature, amount and type of information that an issuer has about a given purchaser. It is a facts and circumstances test. The ACA guidance says, in effect, don't overlook facts that are staring you right in the face. Assuming, of course, that you are dealing with sophisticated angels, as outlined in the Established Angel Group definition.
Does this obviate the "reasonable steps" verification inquiry? Unfortunately, no, but it does give a startup a good start.
For 506(c) to work and amplify the power of angel investing, it's vital that seed stage startups not regard the verification requirement as the dead-end of general solicitation. It's going to take some work, some thought, some educating of lawyers, but the only way around is through.
Disclosure: a colleague and I were part of the team that helped ACA leadership develop the guidance.