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Here is the fact that surprises most first-time founders: under US law, selling equity in your startup is selling a security, and every security sold in the United States must either be registered with the SEC or fit an exemption.
Registration means an IPO-scale process. Nobody raising a seed round is registering. Which means every private round you have ever heard of — every SAFE, every angel cheque, every Series A — is relying on a specific exemption, whether or not anyone said so out loud.
Choosing the wrong one, or breaking the rules of the one you chose, has real consequences: rescission rights that let investors demand their money back, enforcement exposure, and a diligence problem that can derail a later round. Choosing well is mostly a matter of understanding four options.
This is the exemption behind the overwhelming majority of US venture rounds.
The prohibition on general solicitation is the constraint that matters, and it is broader than founders expect. You cannot advertise the round, post about it publicly, present at an event open to the general public, or email people you have no prior relationship with. The exemption assumes you are approaching people you or your advisors already know — a pre-existing, substantive relationship.
This is why founders are told not to tweet "we're raising!" It is also why warm introductions dominate the market: the legal structure of the default exemption actively rewards existing networks, and it is a large part of why building relationships before you need capital is not merely good practice but practically necessary.
One further trap: bringing in non-accredited investors, even the permitted 35, triggers substantial disclosure obligations resembling a registration statement. In practice almost every company simply restricts the round to accredited investors and avoids the issue entirely.
Introduced under the JOBS Act, 506(c) trades one constraint for another.
Traditional verification methods are intrusive: reviewing tax returns, bank and brokerage statements, or obtaining written confirmation from a licensed attorney, CPA, broker-dealer or investment adviser. Many investors, particularly experienced angels, simply decline to hand over their tax returns to a seed-stage company — which is why 506(c) has historically been used far less than its flexibility would suggest.
In March 2025, the SEC's Division of Corporation Finance issued a no-action letter that materially changed the calculus. It confirmed that an issuer can satisfy the verification requirement by relying on a sufficiently high minimum investment amount, combined with specific written representations, absent any indication to the contrary.
In broad terms, the framework contemplates:
The logic is straightforward: someone able to write a $200,000 cheque without third-party financing is almost certainly accredited. For funds and companies raising from larger cheque writers, this removes the main practical obstacle to using 506(c) and makes open marketing genuinely viable. It is one of the more significant private-markets developments in years, and it remains under-used simply because it is not widely known.
Reg CF is the exemption that lets your customers, users and community invest — not just wealthy individuals.
Non-accredited investors face caps calculated from their income and net worth — broadly, a percentage of the greater of the two, with a floor for smaller investors and an overall ceiling. The specific dollar thresholds are periodically adjusted for inflation, so check the current figures rather than relying on a number in an article.
Financial statement requirements scale with the amount raised: small raises need only financials certified by a company officer, mid-sized raises need review by an independent accountant, and larger raises need an audit — with relief that lets first-time issuers use reviewed rather than audited statements up to a higher threshold. That relief matters, because an audit for an early-stage company is a genuine cost and delay.
Where Reg CF genuinely works: consumer brands with passionate users, community-rooted businesses, and companies whose customers are a natural investor base. The round doubles as a marketing campaign, and thousands of small holders can become genuine advocates.
Where it does not: as a substitute for institutional capital. Later investors scrutinise Reg CF cap tables carefully, and a badly structured raise that puts thousands of individuals directly on the cap table can create real friction. Most good portals now use a nominee or custodial structure that consolidates crowdfunding investors into a single line — the same logic as an SPV. Insist on it. Our comparison of equity crowdfunding versus traditional fundraising goes deeper on the trade-offs.
Reg A+ sits between a private placement and a full public offering, and it comes in two tiers.
Tier 1: up to $20 million in 12 months. No ongoing SEC reporting, but the offering must be reviewed and cleared by every state in which you sell — which is why relatively few issuers use it.
Tier 2: up to $75 million in 12 months. State review is pre-empted, which is the main attraction, but the obligations are substantial:
Realistically, a Reg A+ offering takes several months and costs a meaningful six-figure sum in legal, audit and marketing before you raise anything. It suits later-stage companies with a genuine consumer following, real estate and fund sponsors, and businesses that want tradeable securities without a full listing. It is not a seed-stage instrument.
Historically, running two offerings close together risked the SEC treating them as one — potentially destroying an exemption. The current framework, in place since 2021, provides clearer safe harbours, including a general rule that offerings more than 30 days apart are not integrated where certain conditions are met. It made concurrent and sequential raises far more workable, but the analysis still matters, particularly when moving between a publicly marketed offering and a private one.
Rule 506(d) disqualifies an offering from using Regulation D if certain "covered persons" — the company, its directors, executive officers, 20% shareholders, and anyone paid to solicit investors — have specified disqualifying events in their history, such as securities fraud convictions or SEC orders. You must conduct a factual inquiry into every covered person. In practice this means a bad-actor questionnaire circulated before every round. Skipping it is a common and unnecessary risk.
Securities sold under these exemptions are restricted. They cannot be freely resold, and holders generally need to satisfy Rule 144 — which imposes a holding period and other conditions — or find another exemption. This is why secondary sales in private companies require company cooperation, and why your stock purchase agreement contains transfer restrictions and a right of first refusal.
Federal exemption does not automatically mean state exemption. Rule 506 offerings are covered securities, so states may only require a notice filing and a fee — but those filings are mandatory in each state where an investor resides, and missing them is a routine diligence finding.
Offerings made entirely outside the United States to non-US persons can rely on Regulation S, frequently in parallel with a domestic Reg D offering. Useful for internationally distributed rounds, and it carries its own conditions on offshore transactions and directed selling efforts.
One practical warning that recurs: do not start marketing publicly and then try to fall back to 506(b). Once you have generally solicited, that exemption is unavailable for the offering. Decide before you post anything.
The most immediate consequence is a right of rescission — investors can demand their money back, with interest, potentially for years afterwards. Beyond that lies enforcement exposure and, very practically, a diligence finding that stalls your next round while counsel works out how to fix it.
Yes. They are securities. The same rules apply to a $25,000 SAFE as to a $25 million priced round.
Yes, within 15 days of first sale, and it is public. Some founders resist because it discloses the offering amount, but the alternative — a missing filing that surfaces in diligence — is worse. Note that Form D asks for the offering size, not your valuation.
Yes, and it is now reasonably common — an institutional round under 506(b) or 506(c) alongside a community round under Reg CF. The integration safe harbours make this workable, but the sequencing and the marketing of each must be handled deliberately with counsel.
If you are a US company selling to non-US persons in offshore transactions, Regulation S is the relevant framework, and local law in each investor's jurisdiction also applies. Cross-border rounds need advice in both directions.
Most founders never think about which exemption they are using, and most of the time that is fine, because their lawyer defaults them into 506(b) and the round is conventional.
It stops being fine the moment you want to market a round publicly, bring in non-accredited investors, or raise from a community. Those are the moments where the choice determines what you are allowed to do — and where the 2025 verification safe harbour has quietly made a previously awkward option much more usable.
Global Capital Network connects founders with accredited investors through our network and events. If you are planning a raise and want to understand the structure before you start, get in touch.
This article is general information, not legal advice. US securities law is complex and the details are fact-specific. Engage qualified securities counsel before conducting any offering.
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