With the ability to leverage marketing campaigns to bring in new investors, companies are continuing to utilize Reg D 506(c) as a key format for capital raising.
December 01, 2022 from San Diego, California: Funded, a California-based capital raising firm focused on Regulation D 506(c) is helping issuers around the country streamline the process of raising money. In the 2021 Fiscal Year Annual Report by the Office of the Advocate for Small Business Capital Formation (an independent office of the SEC), companies leveraging Rule 506(c) raised $124B in capital, with the median raise amount being $850,000.
What is Regulation D 506(c)?
Regulation D 506(c) is a format of capital raising that allows businesses to sell and issue securities in their company to accredited investors. Under Rule 506(c), there is no limit to the amount of money that can be raised plus issuers can advertise the offering to the general public.
What are the Benefits of Regulation D 506(c) for Companies?
Key benefits of utilizing Reg D 506(c) include:
- Issuer can leverage Regulation D marketing/advertising campaigns to attract new investors
- There is no limit to the amount of capital that can be raised
- Typically involves higher investment amounts and fewer shareholders when compared to a Regulation A or Regulation CF which can simplify the cap table
- Does not require the use of a Broker-Dealer, Transfer Agent or Escrow
What are the Downsides of Regulation D 506(c) for Companies?
- Can only raise money from accredited investors. No non-accredited investors are permitted to invest.
- From a marketing standpoint, there is typically a longer latency between someone expressing interest in your offering to actually investing (when comparing to a Reg A or Reg CF). With larger investment amounts in these offerings, investors will spend more time doing due diligence and becoming comfortable with your company before they invest.
- Additionally, with higher investment amounts involved, companies will need to dedicate resources to support investor relations efforts for their offering. Investors will often want to speak to the company and ask questions before they are comfortable investing. Companies must also follow strict compliance protocols when speaking to investors to ensure they adhere to Rule 3a4-1, defining the issuer exemption.
How is Regulation D 506(c) Different From 506(b)?
- A 506(b) offering cannot leverage marketing and advertising to the public, whereas a 506(c) can.
- A 506(b) offering allows up to 35 non-accredited investors to invest (in addition to an unlimited number of accredited investors). A 506(c) does not allow any non-accredited investors.
Want to learn more about the differences, read our FAQ here: What is the difference between a Reg D 506(b) vs 506(c)?
Am I Required to File a Form With the SEC to Raise Capital via Reg D 506(c)?
Yes. Form D is the primary legal document filed with the SEC when a company is using Reg D to raise capital. Issuers must file this form with the SEC within 15 days after the first sale of securities in the investment offering.
Pairing With Regulation S for International Investors
If you’ve invested the time and money in creating a full-fledged marketing funnel for your Reg D 506(c) offering, you may also consider running a Regulation S offering simultaneously. Regulation S allows companies to bring in international investors of any wealth level.
Funded provides end-to-end marketing and advertising solutions for Reg A, Reg D 506(c), Reg S and Reg CF capital raises. Funded has a proven track record of planning and executing marketing and advertising campaigns for both equity crowdfunding raises and private placement offerings. In addition, Funded has an extensive partner network that connects issuers with all of the key resources necessary for their capital raise.
- U.S. Securities and Exchange Commission. (2021, December). OASB Annual Report For Fiscal Year 2021.
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