Entrepreneur Danielle Morrill recently blogged about The Funders Club and AngelList, online angel/VC platforms that connect startups and investors and arrange investment, receiving no-action letters from the Securities and Exchange Commission staff (you can read the full text of the letters at the hyperlink).
“What are no-action letters?”, you may be asking yourself. Securities issuers, brokers, or dealers may write to the SEC staff about an activity that the issuer/broker/dealer intends to take — the no-action letter is the SEC staff’s response that, in their judgment, they will not recommend an enforcement action to the to the Commission. It is worth noting that a no-action letter by no means binds the Commission not to initiate an enforcement action, especially if the issuer’s/broker’s/dealer’s activity does not exactly conform to the activity proposed in their request. However, since the Commission very rarely undertakes an enforcement action after a no-action has been issued, issuers/brokers/dealers are generally considered free to conduct their proposed activity with respect to federal securities laws (no-action letters make no comment on the applicability of other federal laws, state securities laws and other statutes, or non-governmental regulatory agencies such as FINRA).
Now that these investment models have been (effectively) validated in regard to federal securities laws, we shall have to wait and see if the model takes off as an option for equity financing for startups.