What is Regulation D 506 b?

Regulation D 506 b is the traditional means by which startups have raised capital. So before 2013, companies like Facebook, Uber raised the majority of their pre-IPO capital from venture capital firms like Sequoia Capital, Benchmark Capital, Andreesen Horowitz and angel investors. More specifically, Reg D 506 b offerings can raise unlimited amounts of capital only from accredited investors and 35 unaccredited investors (all non-accredited investors, either alone or with a purchaser representative, must meet the legal standard of having sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment). Unlike its relative 506(c), 506 b offerings cannot publicly advertise their fundraising efforts. Naturally, a Reg D 506 b offering does not allow companies to raise online. 


If non-accredited investors are participating in the offering, the company conducting the offering must give any non-accredited investors disclosure documents that generally contain the same type of information as provided in registered offerings (meaning if documents are given to accredited investors, the information must be made available to non-accredited ones), must give non-accredited investors financial statement information specified in rule 506, and should be available to answer questions from prospective purchasers who are non-accredited investors. 


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