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SEC Clears Way for Entrepreneurs to Tweet, Blog About Unregistered Shares
Business Owners Are Planning Marketing Blitzes After SEC Action on Unregistered Shares

Entrepreneur Coulter Lewis will soon be able to tweet such a message legally as a way to raise cash for his Woburn, Mass., firm, Quinn Popcorn LLC.

On Wednesday, the Securities and Exchange Commission lifted a decades-old ban on publicizing any share offerings that aren't registered with the SEC and are limited to accredited investors, typically wealthy individuals who can afford the financial risk of investing in a new business venture.

The agency's move satisfies a central provision in last year's Jumpstart Our Business Startups Act, which aims to make it easier for smaller companies such as Quinn Popcorn to raise cash from dozens of wealthy investors who might put in, say, $20,000 apiece in exchange for a small equity stake in the startup.

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John Taggart for The Wall Street

Craig Sher, a co-founder of two-year-old StearClear, says he plans to target new investors by running ads in restaurants and bars.
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As a result, some entrepreneurs with businesses ranging from ride-sharing apps to portable farms say they're planning marketing blitzes that they hope will help them reach the right target audiences of potential investors. Under consideration: putting investment offers on billboards and even printing them on T-shirts.

Such marketing helps the entrepreneurs save time and energy, they say, because they can bypass the time and legwork involved in having to network and make connections to find an investor. But the reason many of these laws were put into effect in the first place was to prevent fraud and to stop the public from losing money on what are typically risky ventures.

Mr. Lewis, the popcorn entrepreneur, says his business already has a dozen angel investors who heard about it through networking, but "finding the right people was very difficult, especially because we're in food, not in tech." He would like to raise cash using Twitter and Facebook FB -1.12%so that Quinn can expand its head count beyond the current seven employees and broaden its product line of microwave popcorn to include other products, such as stovetop kernels.

"We'd make every corner of our network aware that we're looking to raise capital," says Mr. Lewis, a former product designer who started the business with his wife, Kristy, in 2010, naming it after their son, Quinn.

"There's a million different creative ways we can reach out to new investors now," adds Nathan Derrick, 33, the founder of SupplyHog, a two-year-old Web marketplace for windows, doors and other residential-construction supplies. "When you're looking to grow a business, you just want to get out there and get all the attention you can."

Under the old restrictions—put into place in 1933 to protect investors from being scammed—all solicitation in private offerings was banned. Yet, selling registered securities for public offerings is costly and burdensome for many small firms.

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Coulter Lewis

Quinn Popcorn's founders, above, plan to find investors via social media.
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Mr. Derrick says it was difficult to promote his Chattanooga, Tenn., startup without running afoul of securities laws. "It's really, really tough to have to hold your tongue and not say what you're doing or to capitalize on the buzz you're getting," he says. With $300,000 in annual revenue, SupplyHog has 15 employees. By this time next year, Mr. Derrick hopes to have more than $10 million in revenue and at least 100 employees. "To do that, we need more growth capital," he adds.

Some entrepreneurs are wary about luring investors with ads, saying it might attract the wrong market. Others worry that easing the restrictions will result in a flood of investment offers on television, social-media sites and elsewhere. "Whoever has the slickest ads will make the most money here," says Heath Abshure, president of the North American Securities Administrators Association.

Over time, he says, fraud may erode investors' confidence in the market, making it harder for small firms to raise capital: "The SEC is aware of the dangers here," he adds, "and needs to ensure the rules include tough protections for investors."

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The risk of fraud seems real. Consider a beef-jerky startup that had recently raised $120,000 on Kickstarter, the largest U.S. crowdfunding site, using Web videos to solicit contributions. Kickstarter pulled the plug on the campaign last month after many of the site's users grew suspicious the startup didn't exist. The cash was in the form of contributions, rather than equity, and no money changed hands before the campaign was suspended, according to a Kickstarter spokesman.

Brad McNamara, whose Boston-based startup Freight Farms converts shipping containers into portable produce gardens, says he plans to cover one side of the 40-by-9-foot containers with billboard-style ads to draw investors. He hopes to stack two containers on top of each other in New Market Square, the city's main produce hub, that ask investors to "help us fix the broken global food system."

"The possibilities are huge," Mr. McNamara adds. The company, which sells the containers for $60,000 each and has $500,000 in revenue since its launch last year, needs an additional $1 million in capital to streamline production and keep up with orders, he says.

Douglas Penman of San Francisco is eager to place ads on buses and in newspapers inviting investors to back his startup, Nukotoys Inc., a maker of children's educational trading cards that interact with mobile devices. He also wants to hire people to wear T-shirts with the message, especially window washers, because the skyscrapers they clean could have wealthy executives inside.

Mr. Penman started Nukotoys in 2010 after working for 15 years in the advertising industry. He says he raised a little more than $1 million from friends and family early on but quickly spent most of that on product development. Since then, he says, he has struggled to attract angel and venture investors to provide additional funding to expand his user base. Mr. Penman, who's seeking about $2 million, figures he would be more successful if he could openly solicit investors.

Craig Sher, a co-founder of two-year-old StearClear LLC, a designated-driver service that provides cars and drivers for people who have had too much to drink, says he plans to target new investors by running ads in restaurants and bars where most of the clientele use the service.

He says that for most startups, raising cash typically involves one-on-one meetings with venture-capital firms, a process he calls time consuming and inefficient because many of the firms demand costly terms and an assured return on investment.

His proposed campaign "can get out a clear message: 'Wouldn't you want to bring this service into your local community?'" he adds.

The Financial Industry Regulatory Authority, a Wall Street regulator funded by private-sector financial firms, is also expected to weigh in this week. It will begin to consider rules allowing so-called equity-crowdfunding websites to help entrepreneurs sell unregistered shares in their companies to any investors, regardless of their net worth, another key provision of the JOBS Act.

Bryan Pate, a triathlete who is co-founder and co-president of ElliptiGO Inc., has sold 8,000 low-impact running machines so far with an average price of $2,500, mostly to wealthy clients, he says. He wants to raise $2 million by advertising to investors on his Facebook page and in a newsletter that goes out to 20,000 people. If he can find as many as 15 investors to put in $100,000 each, "that's a huge time saver. It would be really advantageous.... Those tools are free, in my control, and they target customers who have opted in to learn about my product."

Write to Angus Loten at [e-mail] and Sarah E. Needleman at [e-mail]