Most startup and fund fundraising happens privately, without the full public registration that an initial public offering requires. Regulation D is the framework that makes that legal, providing exemptions that let companies sell securities to investors without registering the offering with the SEC.
Regulation D's most-used exemptions, under Rule 506, let issuers raise unlimited amounts from accredited investors, and in some cases a limited number of non-accredited ones, without registration. One variant prohibits general solicitation; another permits advertising the offering but requires the issuer to verify that purchasers are accredited. Which path an issuer takes shapes how it can market the raise.
Much of Regulation D turns on the accredited investor concept, individuals or entities that meet income, net-worth, or professional criteria and are presumed able to bear the risk of private investments. Selling to non-accredited investors is possible under some exemptions but triggers additional disclosure obligations, which is why many private offerings stick to accredited investors.
Exempt does not mean unregulated. Issuers generally must file a Form D notice, comply with the antifraud provisions of the securities laws, and observe state notice requirements. And the exemption's conditions, on solicitation, verification, and investor type, must be met precisely, because losing the exemption can turn a private raise into an illegal unregistered offering.
Private, but not lawless.
Greenridge L&C Advisors is a compliance consultancy, not a law firm. This is general information, not legal advice.