It used to be the case that whenever a private company did a financing, it filed a Form D with the SEC in order to comply with Regulation D. Suddenly, I’m hearing of lots of situations, especially in seed and Series A financings, where companies are no longer filing Form D. Apparently a number of law firms have decided that a Form D filing is no longer mandatory. After checking with some entrepreneurs who haven’t filed a Form D, their motivation is that they want to keep their financing “secret” so they can stay in a stealth mode for longer.
Jason Mendelson just wrote a post on his blog titled Why is Everyone Hatin’ on Form D? In it he explains the groundrules.
Regulation D requires a filing, but per Rule 507, if you don’t file it, doesn’t eliminate your ability to rely on RegD for the financing. Therefore a company that wants to be stealth and elects against the advice not to file the Form D is violating an SEC rule, but it doesn’t jeopardize the offering exemption. 4(2) always exists, but that is factual, and in these very early rounds you may have small angels or others who are tricky.
Jason goes on to explain the implications and downsides of not filing. In the comments, Bart Dillashaw weighs in on the best reason to file Form D (it preempts all of the individual state securities laws and regulations.)
Both Jason and I feel strongly you should just suck it up and file Form D. I am completely confused by the advice some lawyers are giving about the reasons not to file. And I am concerned that some VCs are supporting what we think is bad legal advice and this will ultimately come back to haunt some entrepreneurs.
