By Sarah McBride
SAN FRANCISCO (Reuters) - 500 Startups, the $100 million Silicon Valley venture fund perhaps best known for its incubator program for young companies, said on Thursday it would tap a new source of cash for its latest fund: the public.
Such a move would have been illegal until late last year, when a new law kicked in that allows private companies and funds to use advertising to find investors. Its adoption by 500 Startups, founded by respected entrepreneur and investor Dave McClure, signals growing acceptance of public fundraising in Silicon Valley.
"Imagine trying to sell a product, especially if you're a public figure, without being able to talk about it," said McClure, adding the firm wanted to take advantage of its relatively high profile, including its almost 200,000 Twitter followers.
Still, McClure expects most investors in the fund to come from traditional sources, rather than via Tweets and notices on his website. And all investors will still have to be accredited, meaning they have net worth of at least $1 million and can prove it through documents such as tax returns.
While many start-up companies have taken advantage of the change in rules, few venture firms have. One exception: New York-based ff Venture Capital, which raised a $52 million fund late last year in part through mentions on Twitter and its website.
The old rules, mandated by the 1933 Securities Act, changed last year thanks to a provision of the 2012 Jumpstart Our Businesses Act, better known as the Jobs Act.
The ban on advertising was originally to prevent opportunists from targeting the gullible and has long been considered a bedrock protection against scams. Congress decided to lift it, with some protections, to help startups and thus boost the overall economy.
Many lawyers warn that lifting the ban could lead to abuse.
McClure's fund, which will target investors who can commit $1 million to $5 million each, is 500 Startups' third fund. It raised a $29 million fund in 2010 and a $44 million fund in 2012.
(Reporting by Sarah McBride; Editing by Richard Chang)