Rule 506(c) of Regulation D is a federal securities exemption that allows startups to raise an unlimited amount of money from accredited investors and, in doing so, to engage in general solicitation of such investors. This is a significant benefit because other popular exemptions, like Rule 506(b), do not permit such general solicitation or advertising of the offering. Rule 506(c) can allow founders without a preexisting network of investors to reach potential investors and raise funds. However, to protect against abuse, Rule 506(c) does require startups to take reasonable steps to verify the accredited investor status of participants, which is a higher bar to clear than for other rules, such as Rule 506(b). Startups must file Form D with the SEC within 15 days after the first sale of securities in the offering and make applicable state securities notice filings.
The main reason why a startup might choose to rely on Rule 506(c) is that the startup wants to reach a broader potential pool of investors through general solicitation or advertising the offering. However, if this is not an important objective, usually startups will be better off relying on a different exemption, like Rule 506(b), which permits non-accredited investors to be included and has relaxed standards for determining whether investors are accredited.