The Securities & Exchange Commission (SEC) regulates public offerings, private offerings and crowdfunded offerings. For private and crowdfunded offerings, the SEC has created a variety of different offering types under which deal sponsors can offer their deal to potential investors. For many investors, the difference between these offerings can be quite confusing. In this short blog, we provide a simple overview of the various offerings.
At a high level, there are four major offering types:
- Regulation D, 506c offering
- Regulation D, 506b offering
- Regulation CF offering
- Regulation A offering
So lets go through the basics of the different types of offerings.
Are you accredited?
The SEC limits certain offering types to investors that meet certain income and asset thresholds. To learn more about accreditation, visit our blog post on investor accreditation. So what are the restrictions?
- Reg. D, 506c - limited to verified, accredited investors only
- Reg. D, 506b - a maximum of 35 non-accredited investors can be accepted
- Reg CF - open to all investors
- Reg A - open to all investors
Finding the deals?
In addition to the type of investors, the SEC also regulates how deal sponsors can advertise their deals. This can make it more difficult to find some deals. So what are these restrictions?
- Reg. D, 506c - sponsors can advertise their deals anywhere
- Reg. D, 506b - sponsors are not permitted to advertise their deals. The deals are only open to investors that the sponsor has a pre-existing relationship with
- Reg CF - sponsors can advertise their deals only through a crowdfunding portal
- Reg A - sponsors can advertise their deals anywhere
Finally, investor disclosure requirements vary by type of offering. Unlike public offerings that are highly regulated, private offerings have less regulations. So its up to the investors to stay on top of the deal. Here is a summary of the disclosure requirements.
- Reg. D, 506c - there are no disclosure requirements or audit requirements. Sponsors have the flexibility to manage disclosures as they choose with their investors. The SEC believes this is okay since the offering is limited to only accredited investors.
- Reg. D, 506b - If the offering has not taken capital from non-accredited investors, disclosure requirements are similar to 506c. If the sponsor has taken capital from non-accredited investors, the disclosure requirements go up. Investors should review the offering documents to see what the sponsor plans to disclosure and if the offering will be audited.
- Reg CF - disclosure and audit requirements are significantly higher since the offering permits non-accredited investors.
- Reg A - disclosure and audit requirements are significantly higher since the offering permits non-accredited investors.
When investing in private and crowdfunded deals, its important for investors to understand the offering type since it impacts how easily they can find deals, if they can invest in the deal and the disclosure requirements on the deal. We hope this simple summary helps you understand the various types of private & crowdfunded offerings better.
Good luck investing!