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06/13/18 6:06 AM

#159308 RE: trader53 #157274

Educational Post - Rule 506(c) Offerings

Raising Capital – Rule 506(c) Offerings





Top 5 Advantages of Rule 506(c)
https://www.wealthforge.com/insights/top-5-advantages-of-rule-506c/

Rule 506(c) Private Offerings
General Solicitation and Advertising Provisions

https://www.wardandsmith.com/articles/rule-506c-private-offerings-general-solicitation-and-advertising-provisions

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Raising Capital – Rule 506(c) Offerings
Better Than Alternatives

https://scalefinance.com/raising-capital-rule-506c-offerings-better-alternatives/


There’s been a lot written lately
about the SEC’s proposed crowdfunding rules
and new Rule 506 (c).

But most of the articles don’t address
the bottom line issue:


Which exemption is best for most companies
that are trying to raise capital?


Here’s the bottom line answer:
New Rule 506 (c)

provides much greater capital raising flexibility
than both the proposed crowdfunding rules
and traditional private placement exemptions.

Only Rule 506 (c) offerings
have all the following advantages
that affect your ability to communicate
to a wide audience on a cost efficient basis:

– Allow you to use social media,
advertising and other solicitations
with the only limit being
that you are not allowed to commit fraud.

Social media is a cost efficient tool
for attracting investors
if you know how to use it.

– Allow maximum flexibility
about what you disclose to investors
and how you disclose it,
subject only to the requirement
that you not commit fraud.

– Do not require financial statements
that have been reviewed or audited
by independent accountants
no matter how much money you raise.

– Provide an exemption from state rules
that require pre-sale filings and reviews
by state securities administrators,
which can cause delays
and extra offering expenses.

– Allow you to raise any amount of capital.

– Have no post-sale filing requirements
other than filing Form D with the SEC
and some states.

The one downside to Rule 506 (c) offerings
is that you must sell only to accredited investors
and take reasonable steps to verify
that all your investors are accredited.

See my blog post on July 18, 2013
that discusses
the accredited investor verification process.

http://jimverdonikintersection.blogspot.com/2013/07/sec-rule-506-c-sec-throws-new.html

Accredited investor verification
is a small price to pay
for all the advantages
Rule 506 (c) offerings provide.

Financial statement requirements
in crowdfunding offerings
and Rule 506 (b) and 505 offerings
that include non-accredited investors
can double or triple your capital raising expenses.

Crowdfunding’s requirement
that you must continue to file reports with the SEC
for an indefinite time period
after you raise money is also a cost burden.

And you can use social media in crowdfunding offerings
only if you limit yourself to a notice
that is a lot like the traditional “tombstone” ads
you see in the Wall Street Journal.

BORING doesn’t sell in social media.

In return for all these limits,
the crowdfunding rules
will permit you to raise small amounts of money
from many investors
without worrying whether the investors are accredited.

That’s not a great deal
compared to the short-term and long-term costs
of complying with the crowdfunding rules.

So, does crowdfunding offer no benefits?



As discussed above,
Rule 506 (c) offerings
give you great flexibility
in what you say,
how you say it
and what social media
and other advertising and solicitation tools you use.

Choices and alternatives are generally good things,
but they can present problems.

Using social media effectively is a skill
that not every business has.

If you are not effective in how you use social media,
your sales effort will fail.

The one stop shop approach
that provides all the technology
and regulatory compliance
will be attractive to some people.



Some people like to do the work
to renovate their own homes.

Others prefer to hire a contractor to do it for them.

They either lack the skills to do it themselves
or they don’t have the time.

For that they pay a higher price.

Some people will decide
to pay the SEC’s regulatory price required
to use the proposed crowdfunding exemptions.



The primary benefits of crowdfunding platforms
is that they will offer a clear pathway
for investors and businesses to meet.

This will be particularly true
of crowdfunding platforms
that specialize by industry.

They will attract investors
that are interested in that particular industry.



Think of it like cable TV channels.

If you want the news,
you know what channels specialize in news.

The same goes for movies, history, travel and cooking.

Investors seeking certain types of deals
will gravitate to crowdfunding platforms
that specialize in their type of deal.

That’s a valuable service.



Of course,
having the best of both
crowdfunding platforms channel to investors
and Rule 506 (c) flexibility
is what most people will probably choose.



There is no reason why
you have to accept the restrictions
of the SEC’s crowdfunding rules
to take advantage of crowdfunding platform services.

If you comply with Rule 506 (c)’s
accredited investor verification rules,
you will be able to do Rule 506 (c) offerings
through crowdfunding platforms.

Indeed,
until the SEC’s proposed crowdfunding rules
become effective,
these hybrid offerings types of offerings
will be the only deals you can do
through crowdfunding platforms.



Crowdfunding platforms
will be one of many types
of technology and marketing services people operate
to facilitate 506 (c) offerings.

That will allow businesses raising capital
to use social media in creative ways
to drive people to their crowdfunding platform offering
instead of being limited to ineffective tombstone advertisements.

Another benefit of combining Rule 506 (c)
with crowdfunding platforms
will be that you can avoid the SEC’s proposed requirement
that you use only one crowdfunding platform.

Rule 506 (c) contains no such restriction.
So, you can use multiple channels
to communicate with investors.



Combining crowdfunding technology
with Rule 506(c) offerings
will present some regulatory and technical challenges
to the intermediaries who operate crowdfunding platforms,
but it will offer many benefits
to businesses raising capital.