Raising capital for a private business is no small feat, especially when you’re trying to balance transparency with privacy, compliance with efficiency, and ambition with regulatory guardrails. That’s why Rule 506(c) of Regulation D under the Securities Act of 1933 continues to generate interest among startups, fund managers, and privately held companies.
In short: Rule 506(c) allows you to publicly market your securities offering without registering with the SEC – so long as you follow some important rules. One of the most significant requirements is that all investors in your offering must be accredited investors, and more critically, you as the issuer must take “reasonable steps” to verify their accredited status.
This verification requirement has historically been one of the biggest obstacles to fully embracing the benefits of Rule 506(c). But a recent update from the Securities and Exchange Commission (SEC) could shift that dynamic, particularly for issuers working with high-dollar investors.
Let’s take a closer look.
What Is Rule 506(c) and Why Does It Matter?
Rule 506(c) private placements are a relatively new addition to the private fundraising landscape, introduced under the Jumpstart Our Business Startups (JOBS) Act in 2012. Prior to this rule, issuers raising capital under Regulation D had to do so quietly, marketing only through pre-existing relationships and avoiding anything that resembled general solicitation or advertising.
Rule 506(c) changed the landscape by allowing public solicitation of private offerings, provided two major conditions are met:
- All investors must be accredited investors, as defined by the SEC (e.g., individuals with a net worth over $1 million excluding their primary residence, or annual income over $200,000 individually or $300,000 jointly).
- Issuers must take reasonable steps to verify that investors meet the accredited investor criteria – not just take their word for it.
This verification step has been a sticking point for many. Investors, particularly high-net-worth individuals, often hesitate to provide the personal financial documentation required. Issuers, meanwhile, are wary of the liability that comes with making an incorrect determination. This tension has caused some companies to default back to Rule 506(b), which doesn’t allow public marketing but does allow for self-certification.
Accredited Investor Verification: Why It’s a Challenge
To comply with Rule 506(c), issuers must take proactive measures to verify accredited investor status. Acceptable methods include reviewing income tax returns, bank and brokerage statements, or obtaining written confirmation from a registered investment adviser, licensed attorney, or certified public accountant.
Understandably, many investors are reluctant to share this kind of sensitive financial information with a business they may have only recently encountered. Even when investors are willing, the back-and-forth over documents can slow the capital raise and introduce unnecessary friction into the process.
For many early-stage companies or real estate sponsors, this friction has been enough to discourage use of Rule 506(c) altogether, even though the ability to advertise might otherwise help accelerate their fundraising.
SEC No-Action Letter: Streamlined Verification for High-Dollar Investors
On March 12, 2025, the SEC issued a no-action letter offering interpretive guidance for Rule 506(c) private placements, introducing a more streamlined approach to verifying accredited investor status. Rather than requiring issuers to obtain tax returns or third-party verifications in every instance, the SEC’s letter outlines conditions under which high minimum investment thresholds, paired with specific written representations, may satisfy the “reasonable steps” requirement.
Specifically, the SEC’s guidance permits reliance on a minimum investment amount of $200,000 for individuals or $1,000,000 for entities, provided the following conditions are met:
- The investor must provide a written statement identifying which provision of Rule 501(a) they qualify under (e.g., income or net worth).
- The investor must represent that the investment is not being financed by a third party for the purpose of participating in the offering. If the investor is an entity qualifying based on equity ownership, each equity owner must make a similar representation.
This guidance offers a practical verification framework that reduces the need to collect and review sensitive financial documents, provided that the issuer does not have knowledge suggesting the investor is misrepresenting their status. While not a safe harbor, the letter marks a significant step in aligning compliance with real-world capital-raising dynamics.
Issuers considering reliance on this approach should carefully document their procedures and ensure investor subscription documents reflect these representations clearly. Legal counsel should be engaged to confirm the applicability of this framework to any specific offering.
Strategic Implications for Capital Raisers
If you’re raising capital and considering leveraging Rule 506(c) for a private securities offering, this development is worth noting. It could reshape your fundraising strategy in several important ways:
- Easier outreach to qualified investors: You can advertise broadly and legally – through digital platforms, newsletters, podcasts, or pitch events – without worrying about violating general solicitation restrictions.
- Streamlined compliance for high-dollar investments: Investors committing at least $200,000 (or $1,000,000 for entities) may avoid intrusive document requests if they provide written representations that meet the SEC’s criteria, eliminating the need for direct review of financial statements.
- Greater appeal to reluctant investors: Privacy-conscious individuals may be more willing to engage if they can avoid turning over sensitive financial statements.
However, this approach requires careful planning. You’ll need to document the investor’s commitment size and confirm their representation by a registered adviser or broker-dealer. You must also ensure that your offering materials and disclosures are properly drafted to reflect your reliance on this exemption.
Is Rule 506(c) Right for Your Next Raise?
While the new SEC exemption simplifies part of the process, Rule 506(c) still carries regulatory obligations that shouldn’t be taken lightly. Proper documentation, issuer due diligence, and legal guidance remain essential. But for the right issuer, the opportunity to publicly promote your offering and reach a wider pool of accredited investors could be a game-changer.
Whether you’re launching a venture fund, raising capital for a real estate project, or seeking growth funding for a startup, Rule 506(c) offers a flexible, efficient path to market – particularly in light of the SEC’s new guidance allowing reliance on investor representations tied to substantial investment thresholds.
At Avisen Legal, we regularly help clients evaluate their options under Regulation D, prepare offering materials, and ensure compliance with evolving SEC guidance. If you’re considering a Rule 506(c) private placement, we’re happy to talk through how this updated exemption may align with your goals.
