The Securities and Exchange Commission has taken another step into social media, saying startups can turn to Twitter to raise funds.
The Division of Corporate Finance announced that tweets of 140 characters or less are a proper way for a startup to gauge potential investor interest in a stock or debt offering. The posting must include a link to a disclaimer that says the firm isn’t yet selling securities.
“It’s a brave new world,” Joe Wallin, a Seattle-based attorney who advises startups at Carney Badley Spellman PS, told Bloomberg. “The way securities have been distributed and sold has never involved a lot of media.”
Bloomberg noted that the SEC has been warming up to social media since April 2013, when it approved the use of posts on Facebook and Twitter to communicate corporate announcements such as earnings. Its latest endorsement of social media applies only to companies looking to raise up to $50 million a year.
In March, the SEC raised the fundraising threshold from $5 million for small businesses.
TechSpot said the agency’s new openness to social media is a “welcome change” but “it’s difficult to say that this will make a huge impact on the bottom line for anyone. While most businesses are well aware of the power of social media, Twitter as a marketing tool has traditionally only moved in one direction, from the business to the consumer.
“As these new rules take effect we will see how successfully that same business can promote themselves in the other direction,” TechSpot continued. “Still, if somebody looking for the right startup to fund can find it with a simple hashtag, it may help some new businesses owners stand out among the crowd.”