How Regulation D 506(c) Funds Raise Capital
Capital raising is the lifeblood of private funds, and Regulation D of the Securities Act of 1933 offers critical exemptions that allow private offerings to proceed without costly SEC registration. Among these exemptions, the regulation d 506c offering has become a favored path for fund managers who want to openly market their investment opportunities - provided they follow strict rules.
This article explores what a 506c fund is, how it differs from Rule 506(b), and what the SEC Reg D 506c framework means for private capital fundraising - especially in sectors like real estate, venture capital, and private credit.
What Is a 506(c) Fund?
A 506c fund is a type of private investment fund that raises capital under Rule 506(c) of Regulation D. Introduced by the JOBS Act in 2012, this rule allows issuers to use general solicitation and advertising to market their offerings to the public—something that was previously prohibited under federal securities laws.
The key restriction? These offerings can only accept investments from verified accredited investors. Unlike traditional private placements, it's not enough for investors to self-certify their status. Issuers must take "reasonable steps" to verify accreditation, which can include reviewing income statements, tax documents, or third-party confirmations from CPAs, attorneys, or registered brokers.
So, what is a 506c fund? In essence, it is a private fund that is legally allowed to publicly advertise to attract capital - but only from qualified investors who meet strict verification standards.
Reg D 506(b) vs 506(c): What’s the Difference?
The distinction between reg d 506(b) vs 506c is essential for both fund managers and investors. Both fall under the Regulation D exemption, but they have dramatically different rules and investor engagement strategies.
| Feature | Rule 506(b) | Rule 506(c) |
|---|---|---|
| General Solicitation | Prohibited | Permitted |
| Accredited Investors Only | No (up to 35 non-accredited allowed) | Yes (must verify all investors) |
| Verification Requirements | Self-certification | Mandatory third-party or document-based |
| Advertising Permitted | No | Yes |
A common point of confusion involves what constitutes “advertising.” Under Rule 506(b), any public promotion of the offering, whether social media posts, websites, email campaigns, or speaking at public events, could disqualify the exemption. In contrast, a 506c fund can embrace these marketing channels openly, provided the verification rules are met.
Traits of a Regulation D 506(c) Offering
A regulation d 506c offering must comply with several key rules and operational requirements:
General Solicitation Allowed: Fund managers can advertise online, in print, via podcasts, email campaigns, webinars, and more.
Accredited Investors Only: All investors must meet the SEC’s definition of accredited—such as having an annual income exceeding $200,000 ($300,000 with spouse) or a net worth over $1 million (excluding primary residence).
Verification Process Required: Issuers must retain documentation or third-party confirmations of accreditation status.
Form D Filing: Issuers must file Form D with the SEC within 15 days of the first sale, including basic details about the offering.
No Cap on Capital Raised: Like 506(b), a 506c investment fund has no limit on the total amount of capital it can raise.
These rules provide a unique combination of freedom and responsibility. While advertising broadens access to capital, investor protections must remain airtight through documented due diligence.
What Types of Funds Can Be 506(c)?
The flexibility of the SEC Reg D 506c exemption makes it attractive across many fund types. Some common examples include:
506c Real Estate Fund
These are among the most visible 506c investment fund types. Sponsors can publicly promote real estate investment opportunities—multifamily properties, commercial developments, or fix-and-flip portfolios—to verified accredited investors. The open marketing makes them appealing for syndicators looking to expand beyond existing investor networks.
Venture Capital and Startup Funds
Venture funds can use 506(c) to raise money from new investors without having to stay within closed networks. These funds often rely on digital marketing and pitch events to attract interest.
Private Credit and Debt Funds
Private lending and alternative credit funds are increasingly structured as 506c funds, giving fund managers the ability to scale their investor base through online platforms and financial media.
Opportunity Zone and Impact Investment Funds
Because these niche investments often require public education, the ability to market under 506(c) allows for broader awareness and capital formation, especially in underfunded sectors.
Advantages and Risks of a 506c Investment Fund
While the ability to advertise is a powerful tool, it comes with regulatory trade-offs. Here's what issuers and investors need to know:
Advantages
Access to a wider pool of investors via marketing
Scalability for fast-growing funds
Transparency for investors who discover the offering through public channels
Risks and Challenges
Verification burden can deter potential investors
Higher legal and compliance costs due to documentation requirements
Risk of noncompliance if investor status isn’t properly validated
For fund managers, the extra upfront compliance work is often worth it in exchange for enhanced fundraising capacity.
Leverage the Power of 506(c) Capital Raising with Capstone Capital Partners
Understanding how 506c funds operate—and how they differ from traditional exemptions—is key to navigating today’s private capital landscape. From 506c real estate fund offerings to venture and credit strategies, the regulation d 506c offering has unlocked new ways to raise money in a compliant, scalable manner.
If you're an accredited investor seeking access to institutional-quality private offerings, now is the time to explore Capstone Capital's Growth Fund. Our team of dedicated experts is ready to help you venture into this Regulation D 506c fund to help you build on stable, passive income.
To get started - or to speak with one of our team members - contact us today!
