The JOBS Act of 2012 was designed to involve more people in the practice of funding small businesses and introduce the practice of real estate crowdfunding, as it operates today. Modifications to the SEC regulations, including Rule 506(c), have allowed sponsors that offer deals to advertise them on the Internet.
Investors today utilize online real estate crowdfunding platforms as a venue in which they can shop for underwritten deals and make investments in offerings that best match their investment strategy and risk tolerance.
Enter Rule 506(c)
In September 2013, Title II of the JOBS Act was introduced. It divided Rule 506 at the time into two sections – Rule 506(b) which retained the previous approach and Rule 506(c), which outlined the new approach. Rule 506(c) permits general solicitation and advertising in the public arena, enabling the start and expansion of an investor base.
As it concerns the verification of investors, issuers can benefit significantly by using a third-party verifying service that can provide all of the necessary verification letters. An issuer attempting to handle the accredited investor verification process with third-party help may be making a big mistake. If the issuer makes an error in this process, the entire offering may be subject to disqualification by the SEC. On the other hand, if the issuer hands over the verification process to a third-party verifier, the issuer has met the “reasonable steps” criteria of the SEC and gains assurance of complying with its requirements.
The Advertising Advantage of Rule 506(c)
Rule 506(b) only allows you to advertise the brand, but not the deal itself. Rule 506(c) allows you to advertise the deal. To explain further, Rule 506(b) lets you advertise the website, but not the actual investments until the issuer has developed a relationship with the investor. On the other hand, Rule 506(c) allows all of the investments to be shown to everyone immediately. Rule 506(c) allows investors to see the offerings for themselves instead of relying on a promise made concerning an offering.
Rule 506(c) offers some distinct advertising advantages that can enable you to enlarge your base of investors with no limitation on the amount of capital you can raise. You may also consider switching from Rule 506(b) to Rule 506(c) provided you have not yet accepted any non-accredited investors into your offering.