What is Regulation D?
Regulation D is the most commonly used exemption for private capital raising in the United States. It allows companies to raise capital without registering with the SEC, making it faster and less expensive than a public offering. Most traditional VC and angel investments are structured as Reg D offerings.
Reg D includes several rules, but the two most important for capital raising are Rule 506(b) and Rule 506(c). Both allow unlimited fundraising, but they differ in who can invest and how you can market the offering.
The Fastest Path to Capital
If you have access to accredited investors and don't need to advertise your raise publicly, Reg D is typically the quickest and most cost-effective way to raise capital. Many companies close Reg D rounds in weeks, not months.
Rule 506(b) vs. Rule 506(c)
Choosing between 506(b) and 506(c) is one of the most important decisions in structuring your raise. Here's how they compare:
- ✓ Unlimited raise amount
- ✓ Up to 35 non-accredited investors allowed
- ✓ Self-certification of accredited status
- ✓ No special verification required
- ✗ No general solicitation or advertising
- ✗ Must have pre-existing relationship with investors
- ✓ Unlimited raise amount
- ✓ Can advertise and market publicly
- ✓ Social media, ads, press allowed
- ✓ No pre-existing relationship required
- ✗ Accredited investors only (no exceptions)
- ✗ Must verify accredited status (documentation)
Which Rule Should You Choose?
Choose 506(b) if: You're raising from people you already know—angels, existing investors, friends and family, professional contacts. You don't need to advertise, and you may want to include a few sophisticated but non-accredited investors.
Choose 506(c) if: You want to market your raise publicly, reach new investors through online platforms, or run advertising campaigns. You're comfortable limiting your investor base to verified accredited investors.
Important: No Mixing Rules
You cannot combine 506(b) and 506(c) in the same offering. If you generally solicit or advertise at any point, your entire offering becomes a 506(c) offering, and all investors must be verified accredited investors.
Who is an Accredited Investor?
Accredited investor status is defined by the SEC and is based on income, net worth, or professional credentials. Here are the current standards:
Accredited Investor Qualifications
Individual Investors
- Income over $200K ($300K with spouse) in each of the last 2 years, with expectation of the same this year
- Net worth over $1 million (excluding primary residence), individually or with spouse
- Holds Series 7, 65, or 82 license in good standing
- "Knowledgeable employee" of a private fund
Entity Investors
- Bank, insurance company, registered investment company, or similar financial institution
- Business with assets over $5 million
- Trust with assets over $5 million and sophisticated management
- Entity owned entirely by accredited investors
- Family office with $5M+ in assets
Verification Requirements for 506(c)
Under 506(c), you must take "reasonable steps" to verify that each investor is accredited. Acceptable methods include:
- Income verification: Review tax returns, W-2s, or other IRS documents for the past two years, plus a written statement that the investor expects to meet the income threshold this year
- Net worth verification: Review bank statements, brokerage statements, and credit reports to confirm assets exceed liabilities by $1 million+
- Third-party confirmation: Written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed attorney, or licensed CPA
- Existing investor verification: If the investor was verified within the last 5 years and certified no change in status
What Documents Do You Need?
A typical Reg D offering includes:
- Private Placement Memorandum (PPM): The disclosure document describing your company, the investment opportunity, risks, and terms. Not legally required but strongly recommended.
- Subscription Agreement: The contract investors sign to purchase securities, including representations about accredited status.
- Operating Agreement or Stock Purchase Agreement: The underlying instrument defining rights and obligations.
- Investor Questionnaire: Collects information to verify accredited status and suitability.
- Form D: Filed with the SEC within 15 days of the first sale. This is a notice filing, not a registration—the SEC doesn't review or approve it.
The Reg D Process
Structure & Terms
We help you determine the right investment structure (SAFE, convertible note, preferred equity, etc.), valuation, and key terms that will appeal to your target investors.
Document Preparation
We draft your PPM, subscription agreement, and any other offering documents. For simpler raises, a term sheet and subscription agreement may suffice.
Investor Outreach
You reach out to potential investors through permitted channels. For 506(b), this means existing relationships. For 506(c), you can advertise and use platforms.
Subscription & Verification
Investors complete subscription documents and (for 506(c)) provide verification materials. We review submissions for completeness and compliance.
Closing & Form D Filing
Upon accepting subscriptions and receiving funds, we file Form D with the SEC and any required state notices. Most states require notice filings for Reg D offerings.
Reg D vs. Other Exemptions
| Feature | Reg D 506(b) | Reg D 506(c) | Reg CF | Reg A+ |
|---|---|---|---|---|
| Max Raise | Unlimited | Unlimited | $5 million | $75 million |
| Non-Accredited Investors | ✓ Up to 35 | ✗ No | ✓ Yes | ✓ Yes |
| General Solicitation | ✗ No | ✓ Yes | ✓ Yes | ✓ Yes |
| SEC Review | None | None | None | Full qualification |
| Ongoing Reporting | None required | None required | Annual reports | Semi-annual + annual |
| Time to Launch | 1-2 weeks | 1-2 weeks | 2-4 weeks | 3-6 months |
Is Reg D Right for You?
Reg D is ideal when you have access to accredited investors and want maximum speed and flexibility. It's the go-to choice for traditional venture capital, angel rounds, and fund formation. If you need to reach non-accredited investors or want to build a broad base of retail shareholders, consider Reg CF or Reg A+ instead.