Proposed SEC Rules for Private Offerings: The Impact on Venture Capital Financing

In order to facilitate venture capital financing, corporations rely upon the private offering exemption from the registration and prospectus requirements of the Securities Act of 1933. In an attempt to prevent this exemption from serving as a conduit for the flow of securities into the public securities markets, the Securities and Exchange Commission (SEC) has proposed new rules regulating the resale of securities purchased in a private offering. These proposals would alter, among other things, the existing holding period, sales limitation, and financial information requirements. This article will examine the impact of the proposed *rules on venture capital financing of small corporations. Special emphasis will be placed upon the proposed revised rule 144, released by the SEC on September 14, 1971. By way of background, it is first necessary to consider the importance of venture capital to small corporations and the nature of present law and SEC policy in this area.