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Last Updated on January 21, 2020 by John Fischer

With the SEC lifting the ban on general solicitation, 506c companies are raising money and recruiting new investors.  Regulation D is an exemption from registration with the SEC.  Within Reg D are several rules, including Rule 506.  After the JOBS Act was passed, the SEC created Rule 506c to be a unique exemption that would allow companies to raise money without registering and be able to advertise their private placement at the same time.  Previously, companies were only able to advertise once the deal had been closed to investors.

This important change has made it possible for companies to expose their offering to a wider group of investors.  Instead of being confined to their local investor community, they can now comfortably advertise to investors throughout the United States.  The key is that they need to be accredited investors.  A company using Rule 506c can only accept money from verified accredited investors, or they can lose their exemption.

In order to start raising money, 506c companies need to create their private placement and all of the disclosures that go with it.  Once the private offering has been prepared, the advertisements need to be prepared as well.  These need to be submitted to the SEC before they are made public.  The SEC wants to keep them on file and may or may not comment on them.  The company also needs to register in the EDGAR system before advertising the offering.  This is a change from the traditional Rule 506, where a company could register in the system after an investor was ready to participate.

While 506c companies can advertise the advertisements all need to state that only accredited investors can participate.  With this in mind, it is wise to maintain the traditional investor cultivation of one on one meetings and calling from accredited investor leads as well. Consider these traditional activities as a good way to build your base of investor, while advertising can attract investors to push the raise over the top.  It is unwise to focus on one strategy alone but combined they can make a dynamic impact.

There are several ways to advertise the offering, including:

  • Print Ads.  Buy ad space in investor newsletters, publications, and magazines.  By targeting your ads in places where accredited investors are likely to be found, you will have greater success. Remember that this is a specific audience.
  • Radio.  You can take out radio ads in your local community and may want to promote an informational event that people can attend for free.
  • Television.  While an expensive form of advertising, this market is now open to 506c companies.
  • Online.  Announce your offering on your website and social media pages.  This will give you good exposure with your existing customer base, people that know you and may be interested in supporting you.

The market is wide open to raise money and attract accredited investors.  Leverage this opportunity to expand your investor base and close more deals.  Just make sure to stay in compliance along the way.

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