Crowdfunding Investments offered under Rule 506(b) are typically only open to accredited investors (with some important exceptions), and companies cannot use “general solicitation” to advertise the offerings. In other words, you may normally only view the details of a 506(b) investment after you have affirmed that you are an accredited investor.
Rules 506(b) and 506(c) were created by Title II of the 2012 JOBS Act, which split the previous Rule 506 into two parts. The change was made to allow companies and intermediaries to begin publicly advertising Reg D investments, subject to some limitations.
Even before the JOBS Act, several online platforms were offering online investments in startups to accredited investors. Some, like MicroVentures, have since expanded out to include other offerings, while others, like AngelList, continue to offer only 506(b) deals.
The main difference you’ll encounter between offerings made under Rule 506(b) and Rule 506(c) are that investors in 506(b) offerings can “self-certify” that they are accredited (basically check some boxes), but for 506(c) offerings, the platform must take “reasonable steps” to verify an investor is accredited before allowing them to invest. That means supplying things like tax returns, W2s, or other documentation. There are also third-party services, like InvestReady, that some platforms use to verify investor accreditation status.
Another subtle difference between 506(b) and 506(c) offerings is that up to 35 non-accredited investors may participate in a 506(b) investment (often in the case of a startup, that ends up being friends and family).
Under both rules 506(b) and 506(c), companies may raise an unlimited amount of money from accredited investors.
Rule 506(b) applies only to Reg D offerings, not to Reg A+ or Reg CF offerings, all of which may be “generally solicited”
You can read more about the crowdfunding rules and regulations on our blog, or search for Reg D investments using our investment platform database and screener.