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Why you should consider fund-raising as a 506(c)

When the time comes for fundraising for your organization, the benefits of raising as a 506(c) should be considered. The 506(c) exemption was put in place in 2013 and enables general solicitation by startups while fundraising. This essentially means that your startup can advertise while fundraising, which is not allowed for 506(b) organizations.

Pros and Cons

506(c) Pros

  • You can openly advertise and promote your startup’s fundraise
  • You can publish an official banner on your website to direct new investors to your Propel(x) deal profile.
  • You can collaborate with the Propel(x) marketing team to further promote your fundraising deal. This may include:
    • Press story
    • Media outreach
    • Social media and content marketing

506(c) Cons

  • You are required to verify that all potential investors are accredited. For funds raised from investors outside of Propel(x), you must take “reasonable steps” to verify that the investors are accredited. While the SEC does not explicitly define what “reasonable steps” are, they do mention that they may include ‘“reviewing documentation, such as W-2s, tax returns, bank and brokerage statements, credit reports and the like.” However, for all funds raised on Propel(x), we do all the work for you! Propel(x) takes care of all investor verifications as part of our service.

Summary

If you would like to maximize your fundraising efforts for current and future rounds, 506(c) is a good option to consider. For all investments raised on Propel(x), we take care of accredited verification for you. We are providing this information to inform entrepreneurs of this potential 506(c) option. Please consult your lawyer for further 506(c) consideration.

SEC info link: https://www.sec.gov/fast-answers/answers-rule506htm.html

Propel(x) Disclaimer
Propel(x) does NOT offer legal advice. We provide this information to inform founders about considering the 506(c) exemption. Please consult your lawyer for further 506(c) consideration.

Categories:
Fundraising 101 Startup Tips
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