The Rules of Raising: Regulation D and Accredited Investors

Why a private round needs an exemption

Under the Securities Act of 1933, an offer or sale of securities must be registered with the SEC unless an exemption applies. Equity is a security; so are SAFEs, convertible notes and fund interests. Registration is the process of a public offering, which is why private companies rely on exemptions instead.

The exemption used for most private capital is Rule 506 of Regulation D. As Lesson 1.3 showed, Rule 506(b) alone accounted for about 378 billion dollars of non-fund capital in the twelve months to June 2025. A Rule 506 offering preempts state registration — states may still require a notice filing and a fee — and it requires a Form D notice filed with the SEC no later than 15 calendar days after the first sale (Lesson 4.4). It also carries a bad-actor disqualification under Rule 506(d): certain past violations by the issuer or people connected to the offering, including placement agents, can make the exemption unavailable, so issuers and desks check covered persons before they start.

506(b) or 506(c): the general-solicitation choice

Rule 506 comes in two forms, and the difference is how you find investors.

Under Rule 506(b), the issuer may not use general solicitation or general advertising. Rule 502(c) gives the core examples: any advertisement, article, notice or other communication published in a newspaper, magazine or similar media or broadcast on television or radio, and any seminar or meeting whose attendees were invited by general solicitation. Rule 152 adds the working test: an issuer relying on an exemption that prohibits general solicitation must have a reasonable belief, for each purchaser, either that it did not solicit them through general solicitation or that it had a substantive relationship with them before the offering began. In exchange, 506(b) allows up to 35 purchasers who are not accredited investors in any 90-calendar-day period — each of whom, alone or with a purchaser representative, must have enough knowledge and experience in financial and business matters to evaluate the investment — and accredited investors without verification beyond a reasonable belief. Selling to any non-accredited purchaser triggers disclosure requirements under Rule 502(b), which is why most venture rounds stay all-accredited anyway.

Under Rule 506(c), the issuer may solicit generally — post the round, pitch on a public stage, advertise — but every purchaser must be accredited, and the issuer must take reasonable steps to verify that they are. The rule lists non-exclusive methods: reviewing tax filings for the income test, bank and brokerage statements plus a credit report for the net-worth test, or a written confirmation from a registered broker-dealer, investment adviser, attorney or CPA.

The choice is practical. A founder raising quietly from people they know, introduced through investors and networks, is usually in 506(b). A founder or desk that wants to market the round publicly needs 506(c) and the verification that comes with it — and cannot switch mid-raise without counsel, because a public post made during a 506(b) offering is exactly the communication the rule prohibits.

Who is an accredited investor in October 2026

Rule 501(a) defines accredited investors. For natural persons, the main tests have not changed in years, and the eCFR text current as of October 21, 2026 still reads as follows.

Net worth: an individual whose net worth, alone or jointly with a spouse or spousal equivalent, exceeds 1,000,000 dollars, excluding the primary residence as an asset (and, subject to the rule's details, excluding mortgage debt on it up to its fair market value).

Income: individual income above 200,000 dollars in each of the two most recent years, or joint income with a spouse or spousal equivalent above 300,000 dollars in each of those years, with a reasonable expectation of the same in the current year.

Professional credentials: since the 2020 amendments, individuals holding certifications the SEC has designated qualify — currently the Series 7, Series 65 and Series 82 licences in good standing. Knowledgeable employees of a private fund qualify for investments in that fund.

Entities qualify through several routes, including certain entities with total assets above 5,000,000 dollars, entities in which all equity owners are accredited, and family offices meeting the rule's conditions.

Two current developments are worth knowing. In October 2026 the SEC published a notice, with comments due December 4, 2026, asking whether to designate the Certified Financial Planner certification as a qualifying credential. It is a proposal under consideration, not a change in the rule. And the dollar thresholds are not indexed to inflation, so the share of households that qualify drifts upward over time.

Verification after the 2025 staff letter

Verification was the practical obstacle to Rule 506(c): investors dislike handing over tax returns to every company they back. In March 2025 the SEC's Division of Corporation Finance issued a no-action letter to Latham & Watkins that changes the calculation for larger cheques. The staff agreed that a high minimum investment amount is a relevant factor in verifying accredited status, citing the Commission's own 2013 statement that fewer verification steps may be reasonable when an offering requires a high minimum investment that the purchaser meets. On the facts presented — the request described minimums of 200,000 dollars for natural persons and 1,000,000 dollars for entities — together with written representations from each purchaser that they are accredited and that the minimum investment is not financed in whole or in part by a third party, and no actual knowledge to the contrary, the staff agreed an issuer could reasonably conclude it had taken reasonable steps to verify.

Read it carefully. A no-action letter is a staff position on the facts presented, not a rule or a Commission statement, and different facts could lead to a different conclusion. It helps rounds with large minimum cheques; it does nothing for a raise built on small ones. And it does not change who is accredited — only how an issuer may reasonably confirm it.