Regulation D is the SEC framework that most private funds use to raise capital without going through the full securities registration process. It provides exemptions under Rules 504, 506(b), and 506(c), with the vast majority of fund managers relying on 506(b) or 506(c). These exemptions allow a fund to accept investor commitments as long as certain conditions are met, most importantly restrictions on who can invest and how the fund can market itself.
The two rules that matter for fund managers are 506(b) and 506(c), and the differences between them are significant. Under 506(b), the fund can raise unlimited capital from an unlimited number of accredited investors and up to 35 sophisticated (but non-accredited) investors. The catch: the fund cannot use “general solicitation,” meaning no public advertising, no mass emails to cold prospects, no social media campaigns promoting the fund. You can only approach people with whom you have a pre-existing substantive relationship. Under 506(c), the fund can openly advertise and solicit investors, but every single investor must be a verified accredited investor, and the GP must take “reasonable steps” to verify that status (self-certification is not enough).
Most emerging managers default to 506(b) because it aligns with how early fundraises actually work: warm introductions, personal networks, and existing relationships built through disciplined investor outreach. The no-general-solicitation restriction is less of a burden when your fundraise is relationship-driven. However, the line between permissible pre-existing relationships and impermissible general solicitation is blurry, and the SEC has not provided bright-line guidance. Speaking at a conference and mentioning your fund is different from running LinkedIn ads about your fund, but exactly where the line falls requires legal judgment.
Choosing between 506(b) and 506(c) is a decision you make at fund formation, and it is difficult to switch after the fact. Discuss this with your fund counsel early. The choice affects not just your fund marketing approach but also your investor verification obligations, your compliance workflow, and the types of LPs you can realistically reach. Getting this wrong creates regulatory exposure that no amount of strong returns can fix.
Frequently Asked Questions
What is the difference between 506(b) and 506(c)?
Under 506(b), you cannot publicly advertise the fund but can accept up to 35 non-accredited sophisticated investors alongside unlimited accredited investors. Under 506(c), you can openly solicit and advertise, but every investor must be a verified accredited investor, and self-certification is not enough. Most emerging managers use 506(b) because early fundraises are relationship-driven.
Do you need to file with the SEC under Regulation D?
Yes. After the first sale of securities, the fund must file Form D with the SEC through EDGAR within 15 days. Many states also require their own blue sky notice filings tied to the federal Form D. Your fund counsel should handle both.
Can non-accredited investors invest under Reg D?
Under 506(b), up to 35 non-accredited investors can participate if they are financially sophisticated, meaning they have sufficient knowledge and experience to evaluate the investment's merits and risks. Under 506(c), no. Every investor must be an accredited investor, and the GP must independently verify that status.
