Regulation D — The Ultimate Guide on Raising Private Capital

Pro Business Plans
Aug 29, 2019 · 6 min read
Regulation D Guide

Last Updated: 3/30/2021

What’s Regulation D

In this sense, Reg D provides an expedite route through which a company can offer securities to third parties to raise money for its operational needs. A business can either raise money through equity instruments (such as common shares) or debt instruments (such as bonds or convertible issues) and the offering will not have to be registered with the SEC. Instead, the company will only inform the SEC about the proceeding but it will not require its authorization to complete the placement.

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What are the main benefits of Regulation D

How much money can I raise through Regulation D offerings

· Rule 504

· Rule 506

Scenario 1 — Rule 506(b):

The company must disclose sufficient information to portrait the financial situation of the business and it must be available to potential investors to answer any questions they may have, so they can make an informed decision on whether to invest in the offering or not.

This information commonly involves audited financial statements and business reports that disclose the key operating aspects of the business including details on their manufacturing processes, products, services, marketing information, and future projects.

Scenario 2 — Rule 506(c):

Under both scenarios, a company must file an electronic Form D through the EDGAR Database to inform the SEC that the offering has been placed. The form requires information about the business, its officers, the nature of the offering, the minimum investment required, and any commissions associated with the offering.

Additionally, even though companies may be exempt from formally registering the offering with the SEC, some states may impose certain rules related to private placements. In this sense, the issuer must look for advice from a local securities attorney to make sure the company complies with local regulations.

SEC Exemption Breakdown

What’s an accredited investor

· An annual income of at least $200,000 for an individual or a combined annual income of $300,000.

· A net worth of least $1,000,000 either for a single individual or combined with its spouse, excluding the value of its primary residency.

· A trust that manages at least $5,000,000 in total assets, that is operated by a sophisticated individual (business-savvy) and that wasn’t formed with the specific purpose of purchasing the offering.

· A legal entity whose shareholders are all accredited investors.

Investor Accredit

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How can you prepare to raise money through a Regulation D offering?

Chase Hughes, the CEO of Pro Business Plans shared some key advice on how to successfully raise capital through a Regulation A offering. Given that both offerings are similar in nature, some of these tips are applicable to Regulation D offerings also. Here are a few that you may find useful:

· Make sure consumers love your product

· Set a low goal for your initial round

· You need money to raise money

Signup for a free webinar: Raising Capital for Your Startup: How to Raise Money for your Business Venture from Seed to Series-A

How much does it cost to raise money through Regulation D?

· The legal fees associated with a Regulation D offering may range from $10,000 to $25,000 depending on the complexity of the case. For this reason, many entrepreneurs use Regulation D to raise millions of dollars, as these expenses can be diluted in a large offering.

· Marketing costs associated with a Rule 506(c) offering can range from 1% to 8% depending on the marketer. The agency in charge of helping the business in advertising the offering will collect this fee once the offering is allocated and in some cases, the issuer can negotiate a fee structure based on the percentage of the offering that was successfully allocated.

· There are also some fees associated with certify or qualify accredited investors and companies usually hire financial advisors to help them draft business plans, pitch decks and, financial projections. Establishing a business valuation is key to raise capital.

Form D — Reg D Offering

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