For your startup to be successful, you must be successful in finding and convincing investors to write you a check. On the positive side, in 2023, a record-breaking 5.48 million new businesses were started in the United States. It is estimated that $8.9 trillion is invested in 401 (k)’s. (401k’s owners can transfer money from their 401k’s to a self-directed IRA and be eligible to invest). Many of which are constantly seeking higher returns. Many businesses are owned by people who were just like you when they started. See Tutorial # Strategies ….

 Before you begin reading, I suggest that you bookmark this website and make notes of what you need to know and what you don’t understand.

I offer a free consultation. Please don’t waste it by not having your questions organized. All the information on the website and the free consultations are designed to educate you to make an informed decision whether to go forward or not.

 Complying with Federal Securities Laws

When soliciting public investor funds, you must comply with Federal Securities Laws. There are many Federal Regulations to choose from when raising capital from the public. However, if you are a startup, with no past performance, and you need to find investors to present your startup’s Offering Documents, then the best and least expensive option is Regulation ‘D’ – Rule 506(c)

 Regulation D – Rules 506(b) and Rule 506(c)

Why is it critically important that you understand what is required to comply?

Why is it the first decision you need to make? All other decisions flow from this which Federal Regulations you will elect with the (SEC) Securities & Exchange Commission.

Rule 506(b) and Rule 506(c) – You will use one of these exemptions. Likely 506(c).

You have seen the term ‘IPO’ for “Initial Public Offering”. To raise capital using an IPO is very expensive on many different levels. Regulation D is important because it allows you to solicit investor money at a very realistic and affordable cost.  Regulation D provides a “Federal Exception” to raising money using a Private Placement Memorandum (PPM). If you comply with the Regulation D exceptions, you will incur significantly less expense for soliciting investors. Regulation D Rule 506 (b) or Rule 506(c) makes raising funds from investors “affordable for anyone”.

See Tutorial #?? Costs

For our purposes, we are only concerned with the exceptions offered by either Rule 506(b) or Rule 506(c)

Rules 506(b)

The key takeaways are that

1. You must have a prior relationship with the investor.
2. You can take money from up to 35 Non-Accredited Investors. (Any person who does not meet the requirements of an ‘accredited investor’ is a non-accredited investor. See our menu for the Accredited Investor Form.)
3. You can take any size investment amount from an unlimited number of accredited investors.
4. You cannot advertise.
5. There is no monetary limit on how much money you can raise.

Rule 506(c)

1. You can only accept money from Accredited Investors.
2. There is no limit to the number of Accredited Investors.
3. You can advertise.
4. You do not need a prior relationship with the Accredited Investor.
5. You cannot take money from a non-accredited investor.
6. There is no monetary limit on how much money you can raise.

Author’s Comments:

In bothRegulation ‘D’ Rule(b) and Rule(c), there is no review or approval required of your Offering by the Securities and Exchange Commission (SEC).

The practical application is that you need the option to advertise in almost all circumstances, which only Rule 506(c) allows. For that and other reasons, I would discourage you from selecting Rule 506(b) to raise capital.

To avail yourself of an exemption, you need to comply with the requirements of one of these Regulation ‘D’ rules. However, if you violate the requirements, you may lose the exemption and be required to return the investor’s capital.