When Does My Startup Need a Securities Attorney?
When launching a startup, founders juggle numerous priorities — building a product, attracting customers, and securing early funding. Amid the chaos, it’s easy to overlook legal compliance, especially in the complex area of securities laws. However, getting this wrong can have serious consequences, from hefty fines to the unwinding of funding rounds or even criminal liability.
That’s where a securities attorney comes in. But how do you know when it’s time to bring one on board? This post outlines key milestones and warning signs that indicate your startup needs securities counsel — and why it's critical to engage the right expertise early.
First, What Does a Securities Attorney Do?
Securities attorneys specialize in laws that govern the issuance, sale, and trading of equity and debt instruments. For startups, this usually means advising on:
Raising capital through equity or convertible instruments
Complying with federal and state securities laws (e.g., SEC rules and blue sky laws)
Preparing or reviewing investor documents (term sheets, subscription agreements, etc.)
Structuring financing rounds
Navigating regulatory filings (e.g., Form D)
Managing cap table and equity compensation issues
Avoiding legal pitfalls in investor communications
Unlike general business lawyers, securities attorneys are trained to spot legal risks specific to fundraising and investor relations — areas where many founders inadvertently expose themselves to liability.
1. You’re Raising Your First (or Any) Investment Round
The most obvious time to call a securities attorney is when you’re raising money, even from friends and family. It’s a myth that early or small fundraising rounds are exempt from regulation. In fact, all securities offerings must be registered with the SEC — unless they qualify for an exemption.
Your attorney will help ensure your offering is properly structured to fall under a registration exemption, such as Regulation D Rule 506(b) or 506(c), and guide you through:
Drafting safe or convertible note agreements
Negotiating term sheets
Complying with disclosure requirements
Filing Form D with the SEC and state regulators
Failing to comply with these requirements can lead to “rescission rights,” meaning investors could demand their money back — plus interest — even years later.
2. You’re Granting Equity to Employees or Advisors
Startups often use equity to attract talent in the early stages. But issuing stock options or other equity compensation without a proper plan in place can violate securities laws and tax rules.
A securities attorney can help you:
Set up a compliant Equity Incentive Plan (e.g., 409A valuation)
Ensure proper documentation and board approvals
Understand Rule 701 exemptions for private company equity grants
Avoid unintended tax consequences for your team
If you intend to scale or raise VC money down the line, having a clean and compliant cap table from day one will pay dividends.
3. You’re Pitching Investors Publicly
Are you pitching on social media? Sharing funding news in press releases? Listing your raise on online platforms? Be careful.
Under federal securities law, general solicitation (publicly marketing a securities offering) is prohibited unless you’re using a specific exemption — most commonly, Regulation D Rule 506(c). This rule allows general solicitation but only if all purchasers are verified accredited investors, and specific disclosure requirements are met.
A securities attorney will assess your fundraising strategy to ensure you're not inadvertently breaking the rules, which could invalidate your exemption and expose you to enforcement action.
4. You’re Participating in a Demo Day or Accelerator
Demo days are a gray area in securities law. If you’re pitching your company publicly at an event, especially one streamed online, the SEC may consider it a general solicitation.
An experienced securities attorney can help you structure your presentation and follow-up communications to avoid triggering violations — or help you use an appropriate exemption if general solicitation is intended.
5. You’re Considering a Crowdfunding Campaign
Regulation Crowdfunding (Reg CF) and Regulation A+ have made it easier for startups to raise capital from non-accredited investors. But these avenues come with strict compliance requirements, including:
Limits on how much you can raise
Disclosure requirements
Use of registered crowdfunding portals
Ongoing reporting obligations
If you're thinking about raising money from the crowd, it’s essential to involve a securities lawyer from the outset to navigate the regulatory landscape and avoid missteps.
6. You’re Facing Investor Disputes or Due Diligence Issues
Investor disputes can arise even in well-run startups. A securities attorney can step in if:
Investors claim misrepresentation or omission
There are questions about the validity of past issuances
You’re facing a regulatory inquiry or notice
Additionally, if you’re preparing for a major funding round, M&A transaction, or IPO, expect thorough legal due diligence. Any past securities violations — even unintentional ones — can kill deals. Cleaning up your legal history is easier (and cheaper) when it’s done proactively.
Final Thoughts: Don’t Wait Until It’s Too Late!
Securities law isn’t just for Wall Street. If you’re raising money, issuing stock, or talking to investors, you’re operating in a regulated environment. Waiting until something goes wrong is the most expensive way to handle legal compliance.
By engaging a securities attorney early, you protect your company’s future, avoid preventable legal risks, and position yourself for clean, investor-friendly growth. Think of it not as a legal cost, but an investment in your startup’s foundation. It’s always better to ask early than fix costly mistakes later.