February 12, 2020

What is Regulation D 506(b)?

 

What is Regulation D 506(b)?

Regulation D 506(b) is the traditional means by which startups have raised capital. So before 2013, companies like Facebook, Uber raised the majority of their pre-IPO capital from venture capital firms like Sequoia Capital, Benchmark Capital, Andreesen Horowitz and angel investors. More specifically, Reg D 506(b) offerings can raise unlimited amounts of capital only from accredited investors and 35 unaccredited investors (all non-accredited investors, either alone or with a purchaser representative, must meet the legal standard of having sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment). Unlike its relative 506(c), 506(b) offerings cannot publicly advertise their fundraising efforts. Naturally, a Reg D 506(b) offering does not allow companies to raise online. 

 

If non-accredited investors are participating in the offering, the company conducting the offering must give any non-accredited investors disclosure documents that generally contain the same type of information as provided in registered offerings (meaning if documents are given to accredited investors, the information must be made available to non-accredited ones), must give non-accredited investors financial statement information specified in rule 506, and should be available to answer questions from prospective purchasers who are non-accredited investors. 

 

The KingsCrowd Advantage

With over 50 platforms like Republic, Wefunder, and SeedInvest, you can easily get overwhelmed with the small differences between each platform. Additionally, there are thousands of entrepreneurs hoping to get investors from across America to support their ideas and businesses. Accredited investor or not, KingsCrowd covers deal flow for both accredited and non-accredited investors. No matter who you are, we want to provide unbiased, institutional grade research and analytics for every company across all platforms. Signup for KingsCrowd here to access the best analysis and research on the online private markets. 


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About: Francis vu

An investment professional with a background in private equity and venture capital having spent time conducting investments at VU Venture Partners and Pacific Oak LLC with a finance and management degree from Tulane University.

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