Rule 506(c) lets you raise a fund in public. The catch: once you advertise, a checkbox is not enough. The verification standard you actually owe.
Rule 506(c) is the only way to raise a private fund in public. That freedom comes fenced, and most managers meet the fence too late.
Talking about a securities offering in public has a legal name: general solicitation. The exemption you raise your fund under either permits it or it does not, and most first-time managers default into the one that does not. So the sequence below matters more than it looks. A sharp founder writes a sharp post about their fund, publishes it, feels good about the reach, and has just made a legal decision they did not know they were making. The fix is cheap. It only works if it happens before you hit publish, not after.
Almost every private fund in the United States raises under Regulation D, and almost all of those raises use one of two rules: Rule 506(b) or Rule 506(c). They are siblings. They are not interchangeable.
506(b) is the quiet door. You can raise from accredited investors and up to 35 non-accredited investors, but you cannot advertise the offering. No public posts, no open pitch, no soliciting strangers. The trade for that silence is a lighter check on who your accredited investors are: absent red flags, you may rely on each one's own written representation that they qualify. A questionnaire, signed. That is the long-standing market practice for the accredited side, and it is about as simple as fund compliance gets.
One caution that managers routinely underrate: that easy posture covers your accredited investors, not the non-accredited slots. The moment you actually admit any of the 35 non-accredited investors, two harder obligations switch on. First, the issuer must reasonably believe, under Rule 506(b)(2)(ii), that each non-accredited purchaser (alone or with a representative) has enough knowledge and experience in financial and business matters to evaluate the merits and risks of the investment. That is a reasonable-belief-of-sophistication standard the issuer has to be able to stand behind, and a purchaser's signed self-representation of sophistication does not satisfy it on its own. Second, Rule 502(b) requires you to deliver specified information to those non-accredited investors before the sale, an affirmative disclosure package that looks a lot like the prospectus you were trying to skip. The practical read for most first-time managers: the "up to 35" allowance sounds free and is not, which is why many run 506(b) accredited-only and never touch the non-accredited slots at all.
506(c) is the loud door. It does the opposite on both counts. You can generally solicit, which means you can talk about the raise in public, market it, post about it, run it in the open. In exchange, every purchaser must be accredited (no non-accredited slots at all), and you owe a heightened obligation: you must take reasonable steps to verify that each investor is accredited. A signed checkbox is no longer enough on its own.
506(b) lets you rely on what an investor tells you. 506(c) makes you check. That single difference is the whole game.
The common version goes like this. A manager is operating under 506(b) in their head, raising quietly from their network, and then publishes content that reaches well beyond it. The post is general solicitation. General solicitation breaks the conditions of 506(b). Now the offering has a quiet defect: it was conducted as if no advertising happened, and advertising happened.
The cost of a blown exemption is not the kind of line item you budget for. It surfaces as a defective offering. Investors may hold a rescission right, which means they can ask for their money back. The next fund's diligence will dig it up. A regulator reading the file sees an offering that failed the conditions of the exemption it claimed. None of that is fatal in every case. All of it is avoidable, and you avoid it by deciding which door you walk through before you market anything.
If you choose 506(c), the headline obligation is the verification standard, and there is real structure to it. The SEC built a principles-based test (you must take steps reasonable under the circumstances) and then gave a short list of non-exclusive safe harbors an issuer can use to satisfy it for natural persons. The common ones:
That third option is why a verification-letter service exists at all. For most fund managers, routing investors to a reputable third-party verification provider, or accepting a letter from the investor's own attorney or accountant, is the cleanest path. It moves the documentary burden off your desk and produces a clean record. The amount of verification that counts as "reasonable" scales with the circumstances: a higher minimum check and a more credible investor profile lower the burden; a public solicitation that pulls in strangers raises it.
The deeper change in 506(c) runs past the paperwork: you can no longer rely on the investor's word alone. Under 506(b), a signed accreditation questionnaire, absent something that should make you doubt it, does the job. Under 506(c), that same questionnaire is necessary and no longer sufficient. You have to take real steps to confirm the claim is true. A manager who collects 506(c) subscriptions while gathering only self-certification has met the form of the rule and missed its substance. Verification is the consideration you pay for the right to advertise.
There is a practical, content-side lesson here that goes beyond the legal mechanics. The moment a manager decides to build an audience in public, write, publish, get found, they have effectively chosen the 506(c) posture for any raise that audience feeds. That is a coherent strategy. Public, educational, findable content is a legitimate top of funnel for a fund that has set itself up to verify every investor and admit only accredited ones. The two halves have to match. You cannot run a public content engine and a 506(b) "no advertising" offering at the same time and expect both to hold.
This is also why educational writing, the kind you are reading, is built to stay on the right side of the line. It explains the rules and offers nothing. The offer, when it exists, lives in definitive documents shown only to verified investors. Keeping that separation clean does the real work: it lets a fund be loud about ideas and careful about securities in the same breath. (We take apart the related "AngelList is not a faucet of LPs" myth in a separate piece, and the lighter adviser-registration question in the Exempt Reporting Adviser piece.)
So treat 506(c) as the genuinely useful tool it is. It is the only rule that makes raising a fund out loud legal, which is real freedom for a manager whose edge is reach and reputation rather than a closed Rolodex. The freedom just comes fenced. Choose the door before you market, never after. If the door is 506(c), wire verification into the subscription process from the first close, lean on third-party letters, and admit accredited investors only. Done that way, a public raise is clean. Skipped, you have advertised your way clean out of your own exemption.
This is a structural overview, not legal advice; the right exemption and the right verification approach depend on your specific facts, and the rules change. Talk to your own counsel and confirm your structure before you market it.
Nothing here is an offer to sell a security or investment advice; offers are made only to verified accredited investors via definitive documents.
Sources: Securities Act of 1933, Regulation D, Rule 506(b) and Rule 506(c) (17 CFR 230.506); Rule 506(b)(2)(ii) (issuer reasonable-belief-of-sophistication standard for non-accredited purchasers) and Rule 502(b) (information-delivery requirements where non-accredited investors participate); Rule 501(a) (definition of "accredited investor"); the Rule 506(c) verification safe harbors and the SEC's 2013 adopting release implementing the JOBS Act general-solicitation provisions; Form D (notice of exempt offering).
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