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Equity Crowdfunding versus Rule 506(c?

Posted on May 4, 2017 at 5:05 PM Comments comments (0)

Rule 506(c offerings must be sold only to accredited investors, whereas crowdfunding campaigns can accept money from non-accredited investors.

Remember, however, that 506(c offerings can still be marketed and advertised to anyone.

Another difference is that under Rule 506(c, funding sources must be verified as accredited investors using a third party service (such as Private Placement Advisors LLC).

Rule 506(c offerings have no limit on the capital raise, whereas crowdfunding raises are usually restricted to a $1 million.  

The rules overseeing crowdfunding solicitation are much more restrictive than with 506(c offerings. General advertising is limited and specified disclosure has to occur at one or more online funding portals.

Bottom line.

Is $1M enough for you, or do you need more? If you need more up front, you should go with the 506(c exemption. If your financial needs are $1M or less, consider a crowdfunding program appropriate for your company.

Do you assume you will not need non-accredited investors? Then go with 506(c.

If you believe your campaign is particularly attractive to a wider variety of investors, equity crowdfunding is for you.