The Securities and Exchange Commission (SEC) recently announced new rules allowing “general solicitation” of investors in private offerings. The intent is to provide businesses, including health care companies, a potential middle road between a public offering and a private offering.

Companies raising capital in a private placement have often relied on Rule 506(b) to Regulation D under the Securities Act of 1933 to avoid the expense of a public offering. Among other restrictions, Rule 506(b) prohibits any general solicitation of investors, thereby limiting its utility to many companies.

In 2012, however, Congress directed the SEC to create a rule permitting general solicitation in an offering under Regulation D. The result is new Rule 506(c). Unfortunately, however, although the new rule may benefit established companies looking to raise large amount of capital from private investors, it may not help small companies.