What are the rules for marketing a VC fund publicly?

Five different activities, which the rules treat differently

Managers get into trouble by treating these as one thing. They are not, and the first step is knowing which one you are doing.

• Educational content. Writing about your market, your thesis, or your sector without offering interests in a fund. Generally the least constrained, and it stops being educational the moment it becomes an inducement to invest.
• Public fund marketing. Promoting the fund itself to an audience you have not qualified, which is what most of the restrictions below are about.
• One-to-one communication. Speaking with a specific investor, which is where relationships and pre-existing contacts matter, and which is not automatically outside the rules.
• Private offering materials. The private placement memorandum, the subscription documents, and the partnership agreement, which are delivered to qualified recipients rather than published.
• Diligence responses. Answering a specific investor's questions, which is a different act from advertising and which still has to be accurate.

The United States position, from the codified text

The Securities and Exchange Commission's own small-business guidance pages refused every automated request while this page was researched, for the sixth consecutive wave of this library, so each rule below is quoted from the codified text published by the Legal Information Institute rather than from those pages. The substitution is stated here because a page about what rules require should say which text it read.

• Rule 506(b). The codified text conditions the exemption on there being no more than, or the issuer reasonably believing there are no more than, thirty-five purchasers of securities from the issuer in offerings under the section in any ninety calendar-day period, and on compliance with the general conditions in the neighbouring rules, which include the prohibition on general solicitation.
• Rule 506(c). The codified text requires that all purchasers of securities sold in any offering under that paragraph are accredited investors, that the issuer take reasonable steps to verify accredited status, and it applies the general conditions without the prohibition on general solicitation. That is the trade: advertising becomes possible, and verification becomes mandatory.
• What verification means in practice. The rule contemplates methods including review of tax forms, documentation of net worth, or confirmation from a registered professional. Cooley's practitioner commentary observes that many investors consider this documentation intrusive and invasive, which is a real fundraising consideration rather than a legal one.
• Who may be sold to. Cooley's commentary describes the practical position under 506(b), that a firm is prohibited from publicly speaking about the fund, posting the fund's marketing materials on its website, or reaching out to investors it does not have a relationship with, and that firms rely on a substantive pre-existing relationship.
• Adviser status is separate. The same commentary describes exemptions available to venture advisers and to private fund advisers, and notes that managers relying on them file publicly as exempt reporting advisers. Being exempt from registration is not being exempt from the antifraud rules.

The United Kingdom and European Union position

Different regimes, and both have a defined concept of marketing that is narrower than the everyday word.

• The European Union definition. The Alternative Investment Fund Managers Directive defines marketing as a direct or indirect offering or placement, at the initiative of the manager or on its behalf, of units or shares of a fund it manages to or with investors domiciled or with a registered office in the Union.
• Pre-marketing. Directive 2019/1160 defines it as the provision of information or communication, direct or indirect, on investment strategies or investment ideas by a European Union manager to test investor interest in a fund, in a way that does not amount to an offer or placement.
• The conditions on pre-marketing. The same directive requires that the information not be sufficient to allow investors to commit to acquiring units or shares and that it not include subscription forms or similar documents.
• The notification. A manager must send an informal letter to the competent authorities of its home Member State within two weeks of having begun pre-marketing, specifying which Member States are involved and describing the strategies presented.
• The eighteen-month rule. Any subscription by professional investors within eighteen months of the manager having begun pre-marketing, to a fund referred to in that information, is considered to be the result of marketing and is subject to the applicable notification procedures. Pre-marketing is therefore a sequencing rule rather than an exemption.
• Third parties. Pre-marketing may be conducted by a third party only where that party holds one of the specified authorisations or acts as a tied agent, and subject to the same conditions.
• The United Kingdom. The Financial Conduct Authority's pages describe a national private placement regime allowing some managers to market certain funds in the United Kingdom following the United Kingdom manager regulations, with notification required under regulations 57, 58, and 59 depending on the manager's category, and a notification fee payable each time a new notification is made. Its separate marketing page describes full-scope United Kingdom managers applying for permission to market to retail or professional investors, or both.

Intermediaries, and the question of who may be paid

Using somebody to help you raise introduces a second set of rules, and the analysis is about function rather than job title.

• The statutory definition. Under the Securities Exchange Act, a broker is any person engaged in the business of effecting transactions in securities for the account of others. Whether someone is one depends on what they do and how they are paid rather than on what they are called.
• Transaction-based compensation. Paying a percentage of what somebody raises is the fact pattern that most often turns an introducer into a question, and it is a question to put to counsel before the arrangement starts rather than after.
• Placement agents. Blueprint's page on placement agents covers the commercial decision. The regulatory point is that the agent's own status, registration, and jurisdiction all matter, and the manager cannot rely on an agent's assurance about its own permissions.
• Pay-to-play. Where government investors are involved, the codified adviser rule makes it unlawful to provide advisory services for compensation to a government entity within two years after a contribution to an official of that entity by the adviser or a covered associate, prohibits payment to any person to solicit a government entity for advisory services unless that person is a regulated person or an insider of the adviser, and prohibits coordinating or soliciting contributions or payments in specified circumstances. De minimis exceptions exist for small contributions by natural persons, with a lower limit where the person could not vote for the official.
• Cross-border. An intermediary permitted to act in one jurisdiction is not thereby permitted in another, and marketing into a country generally engages that country's rules regardless of where the manager or the agent sits.

A counsel-review checklist

Take these to fund counsel before the first outreach rather than after the first close. Each one has a jurisdiction-specific answer, and none of them is answerable from a page.

• Which offering exemption are we relying on, in each country where we will speak to investors?
• Does our intended outreach constitute general solicitation under that exemption?
• If we are advertising, what verification process applies to every purchaser, and who performs it?
• What may appear on the public website, and what must sit behind a qualification step?
• Where does pre-marketing apply, what notification is required, and who sends it?
• Which jurisdictions require notification or permission before any marketing begins, and what does each cost?
• Who is permitted to introduce investors to us, on what basis, and how may they be paid?
• Do any government or public investors bring political contribution restrictions, and do we have a policy covering the whole team?
• What disclosure must be delivered before an investor may subscribe, in each jurisdiction?
• Who reviews marketing materials before they go out, and is that review recorded?
• What do we do if an unqualified person asks to invest after seeing something public?
• How do we evidence, two years from now, which investor saw what and when?

Blueprint's page on compliance policies covers where a marketing review sits among a firm's other policies, and its page on publishing performance covers the separate constraint on what may be said about returns.

What limited partners are testing

Institutional investors are testing whether your offering is clean, because their own compliance function will ask.

• Does the manager know which exemption they are relying on?
• Is the public material consistent with that exemption?
• Who reviewed the marketing materials, and when?
• Are intermediaries disclosed, and are their arrangements documented?
• Does the manager know which jurisdictions they have marketed into?

What a disclaimer does not do

A disclaimer is not a safe harbour. Whether an activity is marketing, general solicitation, or pre-marketing depends on what was communicated, to whom, and in what circumstances, and no notice at the foot of a page changes that analysis.

The presence of a common structure or a common practice does not make an offering exempt, registered, approved, or compliant either. Cooley's commentary is direct that a manager will generally want to be exempt from registration under three separate United States statutes, and each exemption has conditions that have to be met rather than assumed.

This page is educational and general. It is not legal advice and it reaches no conclusion about your offering. Rules differ by jurisdiction, by investor type, and by what you actually say, and every question above should be settled with securities counsel in each jurisdiction where you intend to speak to investors.