Rule 506(c) is a provision under Regulation D of the Securities Act of 1933 that permits private companies to raise unlimited amounts of capital through general solicitation and public advertising, provided they sell securities exclusively to accredited investors whose status has been verified. Enacted as part of the JOBS Act in 2013, this rule lifted the longstanding prohibition on publicly advertising private securities offerings.
Before Rule 506(c), companies conducting private placements under Rule 506(b) could not use general solicitation or advertising to attract investors. This meant no public announcements, no social media campaigns, and no pitches at demo days open to the general public. Rule 506(c) changed this landscape by allowing companies to openly market their offerings through any channel—including websites, LinkedIn posts, pitch competitions, and investor conferences—as long as they implement reasonable steps to verify that all purchasers meet accredited investor requirements.
Why It Matters
For angel investors and venture capitalists, Rule 506(c) dramatically expanded deal flow visibility. Startups can now publicly announce funding rounds, making it easier for investors to discover opportunities that previously circulated only through closed networks. However, the verification requirement adds friction: investors must provide documentation such as tax returns, W-2s, or letters from CPAs to prove they meet the $200,000 income threshold or $1 million net worth standard. This administrative burden means some companies still prefer Rule 506(b) for offerings to known investor groups.
Example
A fintech startup raising a $5 million seed round decides to use Rule 506(c). The company posts about the opportunity on AngelList, presents at TechCrunch Disrupt, and runs targeted LinkedIn ads to wealth managers. An angel investor expresses interest and submits her latest two years of tax returns showing annual income exceeding $300,000. After the company's attorney confirms her accredited status, she invests $50,000. Meanwhile, a high-net-worth individual who cannot provide adequate verification documents is excluded from the offering, even though he qualifies on paper.