General solicitation: what counts, and how to advertise a 506(c) raise

By Zach Schleien

What the SEC counts as general solicitation, what doesn't, how 506(b) and 506(c) treat it, and what advertising looked like on a 506(c) real estate raise.

General solicitation means promoting a securities offering to the public, through things like ads, articles, public websites, TV and radio, or a seminar you invite people to through ads. Rule 506(b) bans it, and Rule 506(c) allows it as long as every investor is accredited and you take reasonable steps to verify their status.

I'm a marketer, not a lawyer or a broker-dealer. I built the investor marketing for a real estate sponsor raising for a nine-figure project under Rule 506(c). This guide covers what the SEC's own pages say counts as general solicitation, what doesn't, and what advertising looked like on that raise. Check your own offering with securities counsel before you act on any of it.

Raising capital under Rule 506(c)? I build the investor funnel: ads, an accreditation page, an investor webinar and a setter team. Qualified investor leads ran $35 to $58 for one sponsor. Book a call about your raise.

Key takeaways

• The SEC doesn't define general solicitation exactly, but its examples include newspaper and magazine ads, unrestricted public websites, TV and radio broadcasts, and seminars other than qualifying demo days.
• Whether something counts depends on the facts. The more people you reach who have no investing experience and no prior relationship with you, through impersonal messages sent to anyone, the more likely it counts.
• Rule 506(b) bans general solicitation. One way to stay clear of it is to offer only to people you have a pre-existing, substantive relationship with.
• Rule 506(c) lets you advertise, as long as all purchasers are accredited and you take reasonable steps to verify it.
• People who found you through 506(c) ads can invest in a later 506(b) offering only if you build a substantive relationship with them before that offering starts.

What general solicitation means

Rule 502(c) of Regulation D says that, outside of Rule 506(c) and Rule 504(b)(1), neither you nor anyone acting for you can offer or sell the securities "by any form of general solicitation or general advertising." The rule gives two examples:

1. Any advertisement, article, notice or other communication published in a newspaper, magazine or similar media, or broadcast over TV or radio.
2. Any seminar or meeting whose attendees were invited by general solicitation or general advertising.

The SEC's small business pages add more detail. A communication that conditions the market for a capital raise (warms people up for it), or stirs up public interest in a security, is generally treated as an offer of securities. And while general solicitation isn't specifically defined, the SEC says it includes:

• newspaper and magazine ads
• unrestricted public websites
• TV and radio broadcasts
• seminars, except qualifying demo days

The SEC calls it "a fact-specific determination." In general, the more people you contact who don't have financial experience, sophistication or any prior relationship with you, through impersonal, non-selective communications, the more likely it's general solicitation.

In marketing terms: if strangers can see your message about a deal, treat it as general solicitation and talk to counsel before it goes out.

What doesn't count as general solicitation

A pre-existing, substantive relationship

The SEC says you can run an offering limited to investors you already have a pre-existing, substantive relationship with. The relationship has to be formed before the offering starts, or through a broker-dealer or investment adviser before that professional got involved in the offering.

SEC staff guidance explains what "substantive" means. You need enough information to evaluate, and you have to actually evaluate, the investor's sophistication, financial circumstances and ability to understand the risks. The quality of the relationship is the most important factor. You can't create one just by waiting a set amount of time, or by having someone fill out a short accreditation questionnaire.

The same guidance gives examples of investors you may already have that kind of relationship with: your existing or prior investors, investors in your management's prior deals, and friends or family of the people who control the company.

Angel networks and demo days

SEC staff guidance says introductions through an informal, personal network of experienced investors, like an angel group, can be another way to reach investors without general solicitation. Under Rule 148, pitching at a qualifying demo day isn't general solicitation either. The sponsor has to be a group like a college, university, state or local government, nonprofit, angel investor group, incubator or accelerator. Advertising for the event can't reference any particular offering, and what you share about your offering is limited to basics like the type and amount of securities, the use of proceeds and the unsubscribed amount.

Your Form D

Rule 502(c) says filing a Form D notice isn't general solicitation, as long as you made a good faith and reasonable attempt to follow the form's requirements.

How 506(b) and 506(c) treat it

The SEC describes Rule 506(b) as "the most commonly used offering exemption under the federal securities laws," and it prohibits general solicitation and general advertising.

Rule 506(c) permits you to broadly solicit and generally advertise an offering, provided that:

• all purchasers in the offering are accredited investors
• you take reasonable steps to verify their accredited status
• you meet the other conditions in Regulation D

You still file a Form D with the SEC within 15 days after the first sale. States can't make you register the offering, but they can require notice filings and collect fees. And 506(c) offerings are subject to the "bad actor" disqualification rules.

I compare the two side by side, including how to verify accredited investors, in 506(c) vs 506(b): what's the difference, and which one should you use for your raise?.

Can investors from your ads join a later 506(b) deal?

Yes, with a condition. SEC staff guidance says a sponsor that met investors through general solicitation in a 506(c) offering can sell to them in a later 506(b) offering, if it built a substantive relationship with them before the 506(b) offering started.

Because you met them through ads, you can't point to a relationship that existed before the 506(c) offering. You have to build one before the 506(b) offering starts, and the same quality test applies. The guidance also says that without a prior business relationship, it's likely harder to establish one, especially when the offering happens over the internet. What your file needs to show is a question for your counsel, but a ticked box or a few weeks on your email list won't do it on their own.

How advertising a 506(c) raise looked in practice

The rules tell you what's allowed. Here's what the marketing looked like on that nine-figure raise:

• An investor site with a 506(c) accreditation page and a quiz that screens for LP, accredited and minimum check.
• 9 campaigns and about 185 ads on Facebook and Instagram, with founder-led video and press-based static ads.
• An investor webinar with a 49-slide deck and a 21-message reminder sequence by email, text and voicemail. The first live investor briefing had about 200 registrants with no paid push.
• Compliance built into the funnel: written approvals on the legal questions before launch, a disclaimer on every ad, no ad ever stated a hard return, and creative reviewed in batches.

Over about 10 weeks of live campaigns, qualified investor leads cost $35 to $58, against a published $150 to $480 for accredited investor leads through paid digital. The accreditation page pass rate went from about 4% to 15 to 18%, roughly 4x. Booked investor calls cost $403 on average across the campaigns built to book calls, and as low as $296 in the best ad sets.

Two lessons from the ad account are worth knowing before you spend:

• Open targeting beat stacked accredited investor interests, $74 against $117 per lead.
• The same ad cost $30 per lead consolidated and $227 spread across ad sets.

I've also helped other real estate companies run webinars to market their investment opportunities, plus the strategy behind them: the deck, the funnel and the reminder sequence. Under 506(c), a webinar you promote with ads is a sales channel for the raise.

I walk through the whole investor marketing system, step by step, in Raising capital for real estate: how sponsors find investors beyond their network.

Mistakes that cause problems

• Advertising a 506(b) offering. Rule 506(b) prohibits general solicitation, so a public ad for the deal doesn't fit it.
• Promoting a "private" investor webinar with public ads. Under Rule 502(c), a seminar or meeting whose attendees were invited through general solicitation counts as general solicitation.
• Assuming a post is fine because it doesn't name the deal. The SEC says a communication that conditions the market for a capital raise is generally treated as an offer. Ask counsel before you post about your raise during a 506(b) offering.
• Treating a short questionnaire as a relationship. SEC staff guidance says a short form accreditation questionnaire doesn't create a substantive relationship by itself.
• Paying a marketer or setter a cut of the money raised. The SEC's guide to broker-dealer registration says getting transaction-related pay is a sign you may need to register as a broker, and it lists finding investors for issuers, even as a "consultant." Pay tied to money raised is generally limited to registered broker-dealers, so check any pay plan with counsel.
• Stating returns in ads. On the raise I worked on, no ad ever stated a hard return.

This is general information from a marketer, not legal advice, so check your offering with securities counsel.