Rule 506c Explained

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.

gavel on black wood desk, Rule 506c.

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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