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How to Find Accredited Investors

If you are raising money it is important to connect with accredited investors.  The Regulation D exemption under the Securities and Exchange Act of 1933 makes it possible to raise money through a private offering without officially registering, like you would if going public.  There are several rules you can use within Reg D and some allow for a limited number of non-accredited investors to participate.  The challenge is that when you open up the offering to non-accredited investors the disclosure requirements increase and you are no longer able to advertise.

The new Rule 506c makes it legal to advertise your private offering to the public but you can only accept investments from accredited investors.  This is how to find accredited investors if you have a fantastic PPM but no investors to show it to, you won’t raise any money.

Here are our suggestions for how to find an accredited investor using Rule 506c.

  • Purchase an accredited investor lead list.  You can target accredited investors through a calling campaign, sending mailers, and even emails.  You must first purchase a lead list so that you are contacting the right people.  It is important to not solicit a non-accredited investor.
  • Phone calls.  Once you have your lead list start by calling local investors.  This gives you the opportunity to give information and set a meeting.  In person meetings are an excellent way to close investors because they have the opportunity to ask you questions in real time.
  • Letters.  Send out mailers with a basic teaser, letting investors know that you have an incredible opportunity for them to invest in.   Provide an 800 number for them to call for more information.
  • Presentations.  Invite people on your lead list to local investor presentations.  Give them information on the overall market conditions and why your investment opportunity is something they should get excited about.  Informative presentations are less intimidating and may draw a bigger crowd.
  • Newspapers and Publications.  Under Rule 506c you are allowed to advertise your private offering as long as you specify that it is for accredited investors only.  This means you can advertise in local newspapers, magazines, and online publications.  Do not make any promises of ROI or any guarantees.   Your ads should be enough to excite investors and make them want to call you without putting yourself in a compromising situation.
  • Angel Investment Groups.  You can sign up to make presentations at local Angel Investment Groups.  Everyone that is a member is supposed to be an accredited investor and should have filled out a certification form when they joined.  This prevents you from worrying about giving information to non-accredited investors.

As long as you only take money from accredited investors you can advertise under Rule 506c.  This creates an opportunity to attract more accredited investors to your private offering and raise significantly more capital.  Advertising is not limited to a certain medium or area as long as your disclosures are in place.  You do want to practice caution when accepting investments and make sure all of your third party certifications are in place to prove that each investor is accredited.

We hope this article helps you on how to find accredited investors.

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Hedge Fund Advertises Private Offering Using Rule 506c

Last year the SEC lifted the ban on general solicitation (rule 506c), per the JOBS Act.  This enables private companies, hedge funds, and overall issuers of private placement offerings to advertise their deals to the general public.  The caveat is that the advertisement must specifically state that the offering is for accredited investors only.  While it may be in a public magazine, television station, radio show etc. the general public is not permitted to invest through 506c of Regulation D.

This is great news for those looking to raise capital but many have been fearful about issuing advertisements for obvious reasons.  If you are among the first to do so you are guaranteed to have the SEC reviewing what you are doing for potential violations.

Remember that if you advertise under rule 506c you must verify the accreditation of every investor and keep that information on file.

Balyasny Asset Management is a Chicago Hedge Fund that has dipped it’s toes in the water by advertising in a magazine.  Their half page ad ran in Pensions & Investments on February 3rd.  The copy said, “Performing In All Conditions. Providing Strong Risk Management & Absolute Returns Since 2001.”

Balyansy isn’t the only firm to advertise since the general solicitation ban was lifted.  Bridgewater Associates and Pershing Square Capital have created generic YouTube videos.  All three of these firms are using the advertising as a way to promote their brand, not specific deals.  This is where small issuers and companies can differentiate themselves.  Rule 506c requires that investors be accredited if the specific deal is being advertised.  This may be more of a daunting process for large firms but small companies gathering a specific number of investors may find this to be more manageable, enabling them to publicly advertise each private offering.

One of the concerns many people have about the rule 506c is that the SEC has kept the rules surrounding advertisements ambiguous at best.  There are no set guidelines or boundaries, only the understanding that you can be penalized if you mess up.  This is not a comfortable place to operate in.  Issuers should error on the side of caution when creating ads and avoid promising any type of return or giving too many details.

Ideas for Advertising a Private Offering

  • Promote your firm or company’s profile.  Focus on building your brand and do the selling when investors reach out to you.
  • Highlight what is happening in the industry.  For example if you are in oil and gas, talk about the boom we are current experiencing and say something like “Investment Opportunities Available.”
  • State that the offering is for Accredited Investors Only.
  • Provide legal disclosures written by your attorney. This will be different for every offering.
  • Do not state a projected return.

In the future the SEC is likely to review all advertisements but for now it is up to individual discretion.  If you have a securities attorney ask them to review your ad prior to publishing it.  Otherwise follow our tips for a generic advertisement that will make the phone ring so investors can ask you specifics in person or over the phone.

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