Almost every US startup round runs on Regulation D. It is the set of SEC rules that lets companies sell securities without a registered public offering, and it is the reason a seed round takes weeks of paperwork instead of the year-long process of an IPO. Inside Regulation D, two rules dominate: Rule 506(b) and Rule 506(c). They look similar, differ in two important ways, and the choice between them is visible in public filings.
This guide explains the framework in plain terms and then focuses on the 506(b) versus 506(c) split.
The starting point: registration or exemption
The Securities Act of 1933 sets a default rule. Every offer and sale of securities must be registered with the SEC unless an exemption applies. Registration means a full prospectus, audited financials, and SEC review. That makes sense for public offerings and makes no sense for a startup raising $3 million from a handful of investors.
Regulation D, adopted by the SEC in 1982, provides a set of safe harbors that make private capital raising practical. A company relying on Regulation D must file a notice with the SEC, called Form D, within 15 days after the first sale of securities. The filing is public on EDGAR, which is why Regulation D activity can be tracked.
Regulation D contains three offering exemptions worth knowing.
Rule 504: the small offering exemption
Rule 504 allows a company to raise up to $10 million in a 12-month period. The SEC raised this cap from $5 million to $10 million in amendments that took effect in March 2021. Rule 504 offerings remain subject to state securities registration in most cases, which limits their practical appeal. Startups and funds mostly skip past it, and Rule 504 accounts for a small slice of Regulation D activity.
Rule 506(b): the classic private placement
Rule 506(b) is the workhorse of private capital. Its key features:
- No cap on the amount raised. A company can raise any amount.
- No general solicitation. The company may not advertise the offering publicly. No tweets about the raise, no demo-day pitch to a general audience, no "we're raising" landing page. Investors must come through pre-existing relationships or private networks.
- Investor limits. The company may sell to an unlimited number of accredited investors and to up to 35 non-accredited purchasers. Any non-accredited purchasers must be sophisticated, meaning they have enough financial knowledge to evaluate the investment, and their inclusion triggers disclosure obligations comparable to registered offerings. In practice, most 506(b) rounds take accredited investors only, precisely to avoid those disclosure requirements.
- Self-certification is standard. The company must have a reasonable belief that its investors are accredited, and in a 506(b) offering a questionnaire in which the investor certifies their own status is the accepted norm. See the SEC's overview of private placements under Rule 506(b).
Rule 506(c): general solicitation allowed
Rule 506(c) was created by the JOBS Act and took effect in September 2013. It removed the advertising ban in exchange for a stricter investor requirement:
- General solicitation is permitted. The company may advertise the offering publicly, on its website, in media, at events, anywhere.
- All purchasers must be accredited investors. No 35-person allowance for non-accredited purchasers. Everyone who buys must be accredited.
- Verification is mandatory. The company must take reasonable steps to verify that purchasers are accredited. Self-certification alone has historically not been enough under 506(c). The rule lists non-exclusive safe-harbor methods: reviewing tax documents showing income, reviewing bank and brokerage statements showing net worth, or obtaining a written confirmation from a registered broker-dealer, investment adviser, licensed attorney, or CPA. See the SEC's page on general solicitation under Rule 506(c).
One recent development softened the verification burden. In a March 2025 no-action letter, SEC staff indicated that an issuer can reasonably rely on high minimum investment amounts, at least $200,000 for natural persons and at least $1 million for entities, combined with written representations from the purchaser, as reasonable steps to verify accredited status. That guidance made 506(c) more workable for large-check offerings, though the verification requirement itself still stands and still separates 506(c) from 506(b).
The two differences that matter
Strip away the details and the split comes down to two trades:
- Publicity. 506(b) forbids public advertising of the offering. 506(c) allows it.
- Verification. 506(b) accepts a reasonable belief based on self-certification. 506(c) demands reasonable verification steps, with documentation.
Everything else is shared. Both allow unlimited raise sizes. Both produce a Form D filing. Both create restricted securities that investors cannot freely resell. Both are federal covered securities, meaning states cannot impose their own registration requirements on the offering, though states can require notice filings and fees. Both are subject to the bad actor disqualification in Rule 506(d), which blocks the exemption when the company or its covered persons have certain securities-law convictions or sanctions.
Why most companies still choose 506(b)
Despite the advertising freedom of 506(c), the traditional 506(b) route remains dominant in venture rounds. The reasons are practical:
- Most startups do not need to advertise. Their investors come through networks, and the round is oversubscribed or dead long before advertising would help.
- Verification adds friction. Asking a venture fund for verification paperwork is easy. Asking twenty angel investors for tax returns or CPA letters is awkward, and some walk away.
- Lawyers default to the established path. 506(b) has decades of practice behind it.
506(c) shines in specific cases: crowdfunding-style platforms for accredited investors, real estate syndications marketed online, funds that promote publicly, and any raise where the company wants to talk about the round while it is still open.
Reading the exemption on a Form D
Every Form D states which exemption the issuer claims, in Item 6. This makes the 506(b) versus 506(c) choice a public data point, and it carries signal:
- A 506(b) filing suggests a conventional private round through existing networks. This is the default for venture-backed startups.
- A 506(c) filing tells you the company reserved the right to market publicly. Expect to see the raise promoted, or expect a platform-based offering.
- A Rule 504 filing indicates a small raise, capped at $10 million over 12 months.
Combined with the other fields, offering amount, securities type, industry group, and the date of first sale, the exemption box helps separate a quiet institutional round from a publicly marketed syndication. The Startup Capital Raises Report carries this context for every operating-company raise of $1 million or more it parses from the daily Form D feed. It filters out pooled investment funds, ranks raises by a funding score built on size, freshness, and securities type, shows the disclosed executives, and links every row to the official filing on EDGAR. You can also query the raw filings yourself through EDGAR full-text search.
The honest caveats
This is an overview, not legal advice, and offering exemptions have details and edge cases that matter in practice. Companies sometimes claim multiple exemptions or amend filings as a round evolves. A claimed exemption on a Form D is the issuer's own assertion, and the SEC does not review or approve it. For anyone raising capital, the rules are a matter for securities counsel. For anyone reading filings, the exemption box is a reliable and underused piece of public signal.
The Startup Capital Raises Report shows the exemption, amount, and executives for every new Form D raise before the press writes about it. Get the free preview.
DataSignals Lab publishes data and research. This is not investment advice.
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