Two exemptions under the same regulation. One decision that determines whether you can publicly advertise your offering, email a database of 240,000 accredited investors, or post about your raise on LinkedIn — and whether your existing friends and family can participate without proving they qualify.
Regulation D · Securities Act of 1933 · As amended by JOBS Act 2012Most founders pick an exemption because their attorney recommended one and they moved on. Few understand that this single choice determines who can invest, how you can find them, and whether the internet is a tool or a liability in your raise.
Before the JOBS Act of 2012, this was a simpler conversation. There was essentially one path for a private company raising capital without registering with the SEC: Regulation D 506(b), which had been in place since 1982 and which prohibited general solicitation. You could not advertise. You could not cold email. You could not post about your raise publicly in any form that could be characterized as marketing to investors you did not have a pre-existing relationship with. You raised from people you knew. Full stop.
Then Congress added Rule 506(c) to Regulation D through the JOBS Act, and the landscape changed permanently. For the first time since the Securities Act of 1933, private issuers could generally solicit — publicly advertise, email cold prospects, post on the internet — as long as they verified that every investor who actually participated was, in fact, accredited.
The two exemptions have coexisted since September 2013. Many founders still pick one without fully understanding what they are giving up by choosing the other. That gap in understanding has real consequences for how much capital you raise, how fast you raise it, and who you are legally permitted to accept it from.
The entire functional difference between 506(b) and 506(c) flows from one concept: general solicitation. Under 506(b), you cannot engage in it. Under 506(c), you can. Everything else — the verification requirements, the investor type restrictions, the disclosure obligations — is a downstream consequence of this single structural difference.
General solicitation, under SEC guidance, includes any communication that is broadly accessible to investors with whom the issuer does not have a pre-existing substantive relationship. This covers:
Under 506(b), doing any of the above — even a single cold email to one investor you have not previously met — potentially taints the entire offering and disqualifies the exemption retroactively. This is not a gray area. Inadvertent general solicitation under 506(b) is one of the most common securities violations in private capital formation, and the consequences are not theoretical: investors can rescind their subscriptions, and the SEC can pursue civil enforcement.
“Under 506(b), a single cold email to an investor you have not previously met can retroactively disqualify your entire offering. Under 506(c), you can run a national advertising campaign — as long as every investor who writes a check has been verified.”
506(c) gives you general solicitation. In exchange, it requires that you take reasonable steps to verify that each investor who participates in your offering is actually accredited — not simply certify that they self-declared it.
The SEC provides a non-exclusive list of acceptable verification methods in Rule 506(c)(2)(ii). In practice, issuers typically use one of three approaches:
Income verification: Review two years of IRS filings (W-2, Form 1040, K-1, 1099) that show income exceeding $200,000 individual or $300,000 joint, plus obtain a written representation that the investor expects the same income level in the current year. This is thorough and bulletproof but intrusive — many high-net-worth investors resist providing tax returns.
Net worth verification: Review bank statements, brokerage statements, or other asset documentation showing net worth exceeding $1,000,000 (excluding primary residence), together with a credit report to identify liabilities. Same dynamic: effective but invasive.
Third-party letter:Obtain a written confirmation from a registered broker-dealer, licensed attorney, CPA, or registered investment adviser that they have verified the investor's accreditation within the past 90 days. This is the most commonly used method for institutional or sophisticated individual investors because it transfers the verification burden to a professional and the investor's own advisor relationship.
Third-party verification letters are valid for 90 days. If your offering stays open longer — and most do — you will need refreshed verification for investors who subscribed early in the process. Build this into your closing timeline. Many issuers are surprised to discover that a six-month raise requires re-verification for their earliest investors before the final closing can proceed.
Here is the practical consequence of the general solicitation distinction: 506(b) limits your investor pool to people you already know, or people whom someone you know introduces you to in a way that satisfies the pre-existing relationship requirement. For most founders, this means 50 to 300 realistic prospects — the contacts in your LinkedIn network who might plausibly invest at your minimum check size.
506(c) removes that ceiling entirely. The SEC defines accredited investors broadly: individuals with $200,000+ annual income (or $300,000 joint), $1M+ net worth excluding primary residence, or certain professional certifications including the Series 7, 65, and 82 licenses. There are approximately 33.6 million accredited investors in the United States. With 506(c), every one of them is a legally permissible prospect.
In practice, you will not reach all 33.6 million. But you can reach the 240,000 verified accredited investors on the Dealithic network. The 25,000+ institutional funds whose investment theses, check sizes, sector preferences, and geographic focus are documented and matched by AI to your specific offering. The family offices and RIAs who manage accredited investor capital and who, under 506(b), you could not legally approach without a warm introduction.
“506(b) is a raise from your network. 506(c) is a raise from the entire accredited investor market. The verification burden is real. The tradeoff is a buyer pool that is two orders of magnitude larger.”
The right exemption depends on three variables: the composition of your existing investor network, your willingness to manage verification logistics, and whether you intend to use any platform, advisor, or campaign to reach investors beyond your existing relationships.
One additional consideration worth naming explicitly: you cannot switch exemptions mid-offering. If you begin a 506(b) raise and then send a cold email or list on a platform, you have potentially committed general solicitation and tainted your exemption. The SEC has been clear that the exemption election is made at the time of first sale or first solicitation, and changing course after the fact creates legal risk. Choose deliberately, before you take any action that could constitute solicitation.
Both 506(b) and 506(c) require the issuer to file a Form D with the SEC within 15 days of the first sale of securities in the offering. The Form D is a notice filing — it does not constitute SEC review or approval of your offering. It notifies the SEC that you are relying on a Regulation D exemption, identifies the exemption you are using (506(b) or 506(c)), and provides basic information about the issuer and the offering.
State blue sky filings are separate and vary by jurisdiction. Most states have adopted NSMIA preemption for covered securities (which includes Reg D offerings), meaning state registration is generally not required — but notice filings and fees may still be required in states where your investors reside. If you are raising from investors in more than five or six states, budget for state filing costs.
Dealithic generates compliant PPM, Subscription Agreement, and Form D for both 506(b) and 506(c) offerings — $2,499 flat.
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Start Free →“The exemption you choose is not a technicality. It is the architecture of your investor pool. Choose 506(b) and you are raising from your network. Choose 506(c) and you are raising from the market. Both are valid. The choice should be deliberate.”
Know your exemption. Build accordingly.