Capital Raising Education Series: Part 1 | Featuring: Cap Intro Solutions (Dan Lancellotti and Bob Marietta)
What this video covers: When you raise capital for a private fund, you are conducting a securities offering. Regulation D gives you two paths. Choosing the right one shapes every marketing decision you make.
Rule 506(b): The Traditional Path
The default for private fund managers since 1982. Under 506(b), you can raise unlimited capital from accredited investors plus up to 35 non-accredited but sophisticated investors, but only from people with whom you have a substantive, pre-existing relationship. No advertising. No general solicitation. Your website cannot name your fund or include performance data.
Rule 506(c): The Marketing Path
Introduced by the JOBS Act in 2013, 506(c) allows general solicitation and advertising. You can promote your fund publicly, on your website, social media, in podcasts, in newsletters with performance data. The trade-off: all investors must be accredited, and you are responsible for verifying that status. Under updated SEC guidance, investors committing $200,000 or more (individuals) or $1 million or more (entities) may self-certify, removing most of the friction.
Key Distinctions at a Glance:
- 506(b): pre-existing relationships required, up to 35 non-accredited investors allowed, investors self-certify
- 506(c): advertising permitted, accredited investors only, verification required below thresholds
- Moving from 506(b) to 506(c) is straightforward. Reversing carries significant regulatory risk
- Both require a Form D filing within 15 days of first sale via SEC EDGAR
Fund Structure Considerations
Your Reg D exemption intersects with the Investment Company Act of 1940. Section 3(c)(1) caps you at 100 investors total. Section 3(c)(7) allows up to 2,000 but requires all investors to be Qualified Purchasers ($5M+ in investments for individuals, $25M AUM for entities). Plan your structure before you scale. Filling 3(c)(1) slots with small-ticket investors leaves no room when institutional capital arrives.
Which is Right for You
If you have an established network, no track record yet, or want to include friends and family, start with 506(b). If you want broader marketing reach, have a track record to share publicly, and are confident your investor base is accredited, 506(c) gives you significantly more flexibility.
If this video raised questions about how any of these topics apply to your fund, Steve Vlasak is happy to help. You can contact Steve directly at svlasak@richeymay.com.
Dive into the other topics in this Capital Raising Education series:
- Part 2: Allocating Money and the Due Diligence Process
- Part 3: Considerations for IRA Investment into Fund Structures
- Part 4: What to Do With Investor Contacts — A Look Into CRM
- Part 5: Updating Your Marketing Toolkit
- Part 6: The Perfect Pitchbook
- Part 7: Contributed Securities
- Part 8: Rule 506(b) vs. 506(c) — A Legal Deep Dive
- Part 9: The Human Edge in Capital Raising
