Why do start-ups fail to get funded?
After that, you need to give prospective investors a professionally-prepared set of documents. While a business plan may disclose certain information about current and planned activities, it will almost certainly not adequately describe the risk disclosures necessary to satisfy securities law.
Even with only one or two investors you have created a security that requires an exemption from registration.
Regulation D is a government program creating exemptions to registration under the Securities Act of 1933. There are several programs that are available under SEC Regulation D. The most popular is SEC Rule 506(c.
What is the difference between Rule 506(b and 506(c?
The Regulation D 506(c exemption shares many characteristics of the 506(b exemption -- with these exceptions
- Advertising and general solicitation of investors is allowed.
- Accredited investors must have a third party verification that they meet the necessary standard for income or net worth.
- Pre-filing” of Form D prior to advertising.
Why should you bother with all this?
Many startups and small businesses do not use SEC- and state-compliant offering documents to raise investor funds. They instead rely on a business plan or executive summary to serve as the basis of the investment and assume they will have no need to have complied with state or Federal securities law.
This is not only unprofessional but can be very expensive and painful if the investment turns south.
Most startups choose the Regulation D exemption program. With enactment of the JOBS Act with its SEC 506(c exemption, companies can now execute a “public offering” of their investment opportunity while retaining the low execution cost and compliance-friendly benefits of a traditional exempt offering.
should use a Regulation D offering?
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