Startup pitches post-JOBS Act: Pump up the volume

Publicly soliciting investments is about to become legal -- and that could push the tech startup mania to a whole new level.

Here's one likely outcome of the JOBS Act that passed the Senate last week and is on its way to becoming law: The noise from startups vying for investor attention is going to go up.

Maybe way up.

A key provision of the Act makes it okay for a company to publicly talk about the fact that it's raising money -- something that, while often ignored, has been a lingering threat among the booming startup world. When the rule barring general solicitation goes away, any hesitancy to hawk one's business will vanish.

How could that play out? There's no telling.

Remember the rap video that Mick Hagen made last fall to get the attention of big Silicon Valley investors for his startup Undrip? It's called "We Need an Angel." It landed on YouTube, then TechCrunch and then on and on around the Web.

In fact, Hagen made a bunch of videos tailored to specific investors -- Ron Conway, Reid Hoffman and Dave McClure, among others -- that he blasted out and took to Twitter to promote.

It was an amazing stunt for Hagen and his San Francisco startup, which, fittingly, is building a service that promises to filter the noise on social media to make it more useful.

It was also likely illegal, although that part of the story didn't get written about.

Few startup founders will go to such lengths, of course. But after the JOBS Act becomes law, expect an onslaught of hype from those trying to get attention, especially now that startup lawyers will no longer advise their clients against blatant promotion of their fund-raising needs.

After all, early stage investors are deluged with pitches these days. George Zachary, of Charles River Ventures, told me that during a two-day period last last week he received 70 e-mails from people referring him to startups he should look at. At his busiest periods a year ago, by comparison, his in-box would hit 50 to 100 referrals for an entire week.

"It just feels like a bunch of mania in the air," said Zachary, who will join me on Thursday, March 29th, for a discussion about startup funding that CNET will host and broadcast live .

On one level, the new law will lead to some basic changes and ease concerns among startups and their proponents. Accelerator programs hosting demo days and events like Jason Calcanis's Launch can carry on without concern of an SEC crackdown. Sites like AngelList will be able to let companies post financial documents or, for that matter, even publicly say on the site that they are seeking investors, something that AngelList currently forbids.

Similarly, any startup will be able to talk about its fundraising efforts on its Web site, also something that doesn't happen now. Founders also can take to YouTube, Facebook, LinkedIn, Twitter and elsewhere try to attract attention.

"I'm not expecting Twitter to launch 'Twitter Funding,'" said Kevin Laws, a board member of AngelList who worked hard to drum up support for the JOBS Act. "But I do expect to see a lot of people start Tweeting about their fundraising." Which, despite Hagen's Tweets about Undrip, is surprisingly uncommon. For now, that is.

Opponents of the JOBS Act have voiced plenty of concern about the possibility it will lead to fraud. Those concerns, however, have mainly been around the "crowdfunding" portion of the bill, which lets almost anyone -- not just "accredited investors" -- invest in startups through SEC-regulated portals.

Such marketplaces will doubtless proliferate as a result of the JOBS Act, as my colleague Rafe Needleman writes . And unsuspecting people will also surely lose money. But that's more likely to happen not because of fraud but because startups usually fail and thus make for super risky investments.

But letting entrepreneurs talk publicly about their funding efforts only lets them do just that. If the startup is raising money through angel investors (i.e., accredited investors), using Twitter and social media will be little more than a way to get attention and drum up interest.

If the startup is raising money on a crowdfunding marketplace, the bill actually limits what you can talk about. You can't, for instance, advertise the specific terms of the offer, although you're allowed to direct potential investors to the your "funding portal or broker" (something that should be easy to do in, say, 140 characters).

All this is certain to evolve in unexpected ways, and it seems a safe bet that plenty of lawyers will get work out of this. Personally, I'm just looking forward to see who can top lyrics like this by Hagen:

We need a angel, We need a ride
We need a bump, a bump so we fly
We're gonna make that money off of social steam
But we need your help to reach the dream

 

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