The short answer
Rule 506(c) of Regulation D lets a company broadly solicit and generally advertise an offering, provided all purchasers are accredited investors and the company takes reasonable steps to verify their status. It came out of the JOBS Act's lifting of the general solicitation ban.
- You may advertise the offering publicly.
- Every purchaser must be an accredited investor.
- You must take reasonable steps to verify accredited status.
- File Form D within 15 days after the date of first sale.
The rules, per the SEC
- General solicitation and advertising are allowed.
- All purchasers must be accredited investors; there's no room for non-accredited buyers.
- The issuer must take reasonable steps to verify each purchaser's accredited status, and other Regulation D conditions apply.
- Purchasers receive restricted securities. A Form D notice is due within 15 days after the date of first sale; states may require notice filings and fees; "bad actor" disqualification applies.
Worked example (hypothetical)
A consumer founder in Denver wants to announce her $1.2M seed round on her blog and at a public demo day. She raises under 506(c). Each investor provides verification, for example a letter from their accountant or attorney, before funds are accepted. One interested customer isn't accredited, so she can't take that check in this offering.
506(b) vs 506(c)
| 506(b) | 506(c) | |
|---|---|---|
| Public advertising | Not allowed | Allowed |
| Non-accredited investors | Up to 35 in any 90-day period, with disclosure | Not allowed |
| Verification | No 506(c)-style verification step | Reasonable steps to verify required |
Why it matters to a pre-seed or seed founder
506(c) helps founders without a network who want to market a round openly. The cost is friction: some angels dislike sharing financial documents for verification. Decide before you talk about the round in public, and see Rule 506(b).
Frequently asked questions
Can I switch from 506(b) to 506(c) mid-raise?
It's possible in some cases, but the rules are technical. Talk to securities counsel before you start advertising.
What counts as reasonable verification?
The SEC leaves room for judgment; common methods include reviewing financial documents or relying on a letter from a qualified third party. Confirm with counsel.
Can non-accredited investors join a 506(c) round?
No. All purchasers must be accredited.