Should you run a Reg CF and a 506(c) side by side?

Sometimes, and for two specific reasons. A Rule 506(c) offering running alongside a Reg CF raise makes sense when the company already has a network of accredited investors, or when it has to raise more than Reg CF allows. In both cases the 506(c) works only if it is genuinely more attractive to the accredited share of your audience than the Reg CF checkout is. My usual advice is to give the 506(c) better terms and a larger minimum investment. Without one of those two reasons, most companies are better off putting all their effort into the Reg CF.

Whether two offerings can run at the same time, and how each may be advertised, is a question for securities counsel before any of this is built. This post is about when the pairing is worth asking about.

Why Reg CF alone is usually enough

Reg CF is the right exemption for most founders. It is built for the crowd, it can be advertised, and accredited investors can already invest in it: the per-investor limits apply only to non-accredited investors. See Reg CF limits, explained.

So an accredited investor who sees your ad does not need a separate offering to invest. A second offering adds filings, documents, legal work, and a sales process that someone has to run. That overhead is only worth it when the 506(c) does something Reg CF cannot.

When a parallel 506(c) makes sense

You already have an accredited network

If the company has existing relationships with accredited investors, angels, or family offices, those people may want to write checks far larger than a crowdfunding checkout invites. Many also prefer a direct conversation, subscription documents, and terms that reflect the size of their check. A 506(c) gives them that path while the Reg CF runs for everyone else.

You must raise more than Reg CF allows

Reg CF caps a company at five million dollars in a twelve month period. If the plan genuinely needs more, a 506(c) has no cap. Your Reg CF ads will reach accredited investors anyway, and some of them can be offered the larger offering. That is the second reason: upselling the accredited share of the traffic you are already paying for.

You have to believe that upsell will work. A 506(c) that nobody moves into is overhead for nothing.

Make the 506(c) worth choosing

An accredited investor can already buy into your Reg CF. To move them into the 506(c), it has to offer them something better, and it has to ask for something in return.

• Better terms. For example, a better price, a stronger security, or rights the Reg CF does not include. What is allowed, and how it is disclosed, is counsel's call.
• A larger minimum investment. The better terms are earned by the bigger check. A high minimum also keeps the 506(c) focused on the investors it is meant for, and under recent SEC staff guidance a high enough minimum can simplify accredited verification. See the post on Rule 506(c).

Assume every investor will eventually see both sets of terms. The difference has to be one you can explain in a sentence: larger investors, committing more, get terms that reflect it.

What changes in the campaign

The ads still sell the Reg CF

The public campaign is the Reg CF campaign. The 506(c) is a route inside it, offered to people who identify as accredited, not a second ad program. When an ad mentions the terms of an offering, the advertising rules for that offering apply, and when two offerings run together, the rules for one can follow you into communications about the other. Counsel decides how each offering is mentioned. See how the advertising rules differ by exemption.

Someone has to run the accredited conversations

The Reg CF is self-serve. The 506(c) is a sales process: calls, documents, verification, follow-up. A lead from an accredited investor who waits a week for a reply is usually lost. Decide who owns that pipeline before the route goes live, and track it separately from the Reg CF.

Verification is part of the funnel

Every 506(c) investor must be accredited, and the company must take reasonable steps to verify it. That is a real step for the investor, and it belongs in the plan and the measurement. The options are covered in the Rule 506(c) post.

Two sets of filings

The Reg CF files its Form C and the forms that follow. The 506(c) files a Form D within fifteen days of the first sale, plus state notice filings. Counsel and your filing service need to plan both.

The part your lawyers decide

Running two exempt offerings at once raises the question of whether they should be treated as one offering. The SEC's integration rules address concurrent offerings, and the answer depends on how each is conducted, who each reaches, and how each is advertised. Settle the structure with securities counsel first, then build the campaign to match. A campaign designed before the structure is settled usually has to be rebuilt.

The same question with Reg A+ instead of Reg CF is covered in running a Reg A+ and a Reg D together.

This is general information, not legal advice. Whether your company may run both, and how, is a question for your own securities counsel.

FAQ

Can you run a Reg CF and a Reg D offering at the same time?

Companies do, and it can be structured to work, but whether two concurrent exempt offerings are treated as separate depends on how each is conducted and advertised. It is a question for securities counsel before the campaign is built.

Can accredited investors invest in a Reg CF offering?

Yes. Accredited investors can invest in Reg CF, and the per-investor limits do not apply to them. A parallel 506(c) is only worth running if it offers them something the Reg CF does not, like better terms in exchange for a larger minimum.

Why run a 506(c) alongside a Reg CF raise?

Two main reasons: the company already has accredited investors who want to write larger checks, or it needs to raise more than the Reg CF cap of five million dollars in twelve months. A 506(c) has no cap.

Should the 506(c) have different terms than the Reg CF?

Usually, yes. Accredited investors can already join the Reg CF, so the 506(c) needs a reason to exist. Better terms tied to a larger minimum investment is a common approach. How the difference is set and disclosed is for counsel.