SEC Adopts Amendments to Expand the Communications Exemption for “Demo Days” and General Solicitations of Interest

Capital Markets

Effective as of March 2021, the Securities and Exchange Commission (“SEC”) adopted several amendments “to facilitate capital formation and increase opportunities for investors by expanding access to capital for small and medium-sized businesses and entrepreneurs across the United States.”1 Included in the amendments was an expansion of the communications exemptions, including for “demo days” and general solicitations of interest.

Generally, on demo days, a group of issuers assemble and pitch their presentations to an audience of incubator, accelerator, angel or other investors. Under Rule 148, demo days and similar events will be exempt from the definition of general solicitation,thereby not foreclosing the availability of a Rule 506(b) offering, which is a commonly used exemption for private placements and prohibits the use of general solicitation. The exemption under Rule 148 reflects current market practice in which startup companies often meet with larger groups of angel investors and others to present their businesses.

Communications fall within the exemption if they are made in connection with an event sponsored by a college, university, or other institution of higher education, a state or local government or instrumentality thereof, a nonprofit organization, or an angel investor group2, incubator, or accelerator, provided certain conditions are satisfied, including limitations on the sponsor’s activities and limitations on the information conveyed by or on behalf of the issuer.

Sponsors are restricted from certain activities, including:

  • referencing a specific offering of securities by the issuer in its advertising of the event;
  • making investment recommendations;
  • engaging in investment negotiations between the issuer and attendees;
  • charging attendance fees (other than reasonable administrative fees); or
  • receiving compensation for introductions between attendees and the issuer (or any other compensation with respect to the event that would require the sponsor’s registration as a broker-dealer or investment adviser).

Issuer communications must be limited to:

  • notification of the planned or in-process offering;
  • the type and amount of securities being offered;
  • the intended use of proceeds; and
  • the unsubscribed amount of the offering.

If the presentation is conducted virtually, the rules further restrict participants to:

  • individuals who are members of, or otherwise associated with the sponsor organization;
  • individuals that the sponsor reasonably believes are accredited investors; or
  • individuals who have been invited to the event by the sponsor based on industry or investment-related experience reasonably selected by the sponsor in good faith and disclosed in the public communications about the event.

Generally, Rule 148 clarifies and puts guardrails around what entrepreneurs can share with their audience in demo day events without crossing the line into “general solicitation” and what steps the sponsors or hosts of demo days must follow to, among other things, avoid engaging in activities that would require them to register as a broker or dealer under the Securities and Exchange Act of 1934, as amended, or as an investment adviser under the Investment Advisers Act of 1940.

1 See SEC Release Nos. 33-10884; 34-90300, Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets, November 2, 2020, available at

2 Under the rule, an “angel investor group” is defined as a group of accredited investors that holds regular meetings and has defined processes and procedures for making investment decisions, and is not associated with brokers, dealers, or investment advisers.

Shin Song and Lorna A. Knick are members of the Capital Markets practice group of Wyrick Robbins, which represents clients across a broad range of industries in connection with their SEC reporting, compliance and corporate matters, as well as significant financing transactions. The Capital Markets group publishes Client Alerts periodically as a service to clients and friends. The purpose of this Client Alert is to provide general information, and it is not intended to provide, and should not be relied upon as, legal advice.