Crowdfunding and 506(c) offerings can be thought of as closely related to each other. Both tools make it easier for businesses to access a diverse array of investors. In addition, both take advantage of the potential of burgeoning technologies to raise capital quickly and at a reasonable price. 506(c), crowdfunding, and the differences between them is reviewed below.
The important differences between the two investing avenues include the fact that a 506(c) offering poses fewer restrictions than crowdfunding. The flip side to this advantage involveswho is permitted to invest – crowdfunding hasfewer restrictions then a 506(c).
Investors
When it comes to investors and who can invest, crowdfunding provides a flexible opportunity. Crowdfunding venture opportunities can accept financial support from non-accredited investors. Offerings under 506(c) can only be made by accredited investors.
In addition, Rule 506(c) investors must meet the qualifications of an accredited investor. Businesses can utilize a third-party service to make this verification or perform the accreditation and in-house, with the associated risks. One problem is that investors can be reluctant to offer their sensitive financial information to a business which they are interested in infusing capital. Therefore, utilizing a third-party investor verification service can be the most reliable and safest way to fulfill the verification requirement.
Advertising
Is it concerns advertising and 506(c), crowdfunding, and other differences, it is important to note that crowdfunding solicitation is a more restrictive device than 506(c) offerings. The rules are more restrictive for crowdfunding and general advertising is severely limited. A funding portal must be utilized to perform primary disclosure – this funding portal is a crowdfunding website.
Capital Raising Limits
When it comes to raising capital, 506(c) offerings have zero limits on the amount of capital raised. However, crowdfunding has considerable limitations. Those attempting to raise capital through crowdfunding are restricted to a $1 million maximum offering yearly under Regulation CF. Some businesses that require a significant amount of upfront capital may find this limitation too restrictive.
Many factors come need to be weighed when considering 506(c), crowdfunding, and the differences between the two. If you are looking to verify potential investors, contact an experienced investor verification service that can help you efficiently move the verification process forward.
