When a new company is seeking investors, using 140 characters is just fine with the U.S. Securities and Exchange Commission (SEC).

Last week, the agency's staff, in a ''Compliance and Disclosure Interpretation,'' said a startup can post a Twitter message about its stock or debt offering to gauge interest among potential investors.

The SEC announcement continues the agency's trend of warming up to social media, which began two years ago when it approved the use of posts on Facebook and Twitter to communicate corporate announcements such as earnings.

“It's a brave new world,” said Joe Wallin, a Seattle-based attorney who advises startups at Carney Badley Spellman PS. “The way securities have been distributed and sold has never involved a lot of media.”

The SEC's latest endorsement of social media applies only to companies looking to raise as much as $50 million a year.

Under new small-business fundraising rules approved in March, companies raising as much as $50 million in capital will be required to make fewer disclosures. The previous threshold was $5 million. The changes stemmed from the 2012 Jumpstart Our Business Startups Act, which deregulated fundraising rules for small businesses.

Firms that use Twitter to feel out investor interest must include a link to a required disclaimer that says the firm isn't yet selling securities, the SEC said in the announcement.

It's not clear how many companies will take advantage of the higher fundraising cap. Fewer than 30 offerings were made from 2012 to 2014, when the limit was $5 million, according to the SEC.

The agency said in April 2013 that companies could use Twitter or Facebook to make big announcements as long as investors were told in advance to look there.

–With assistance from Dave Michaels in Washington and Chris Dolmetsch in New York State Supreme Court in Manhattan.

Instant Insights /

Tweeting to Raise Capital

Related Stories

Recommended For You