The SEC just made it easy to publicly market your fund
A new no-action letter makes 506(c) offerings - which allow "general solicitation" - much much easier
Before 2012, it was very difficult - effectively impossible - for any emerging manager to publicly announce that they were raising a fund in the US market. The SEC changed that in 2012 by adopting Rule 506(c), which allows managers to “generally solicit” investors. But there was a catch - in order to take advantage of Rule 506(c) a manager needs to “take reasonable steps to verify” every investor’s “accredited investor” status.
The SEC didn’t explain exactly what “reasonable steps” meant, but gave a few examples of diligence processes that would qualify - all of which were time consuming and invasive (like reviewing your investors’ tax returns). This made the option unattractive - with managers unwilling to put in the time and effort to complete the diligence and investors unwilling to provide their sensitive information - and Rule 506(c) has gone more or less unused.
But, in a no-action letter published on March 12, 2025, the SEC announced that it’s now okay to assume that an investor is accredited if they are investing at least $200K in an offering (or $1M, if the investor is an entity) and make a handful of representations when they invest.
This makes Rule 506(c) offerings much more attractive for emerging managers. For managers with a minimum check size of $200K, there’s now no downside to publicly marketing the fund (or at least relaxing restrictions around fundraising). For managers who are taking smaller checks (including many emerging managers), this new development still takes away one of the biggest problems with 506(c) offerings - they will no longer scare away larger investors who don’t want to deal with the diligence.
It’s hard to overstate how much of an impact this will have on the day-to-day lives of managers who are fundraising. Up until now, managers have had to be extremely careful about avoiding any public statements that could be interpreted as fundraising. Any slip up on a podcast or ill-considered social media post could mean losing prospective investors and significant administrative hassle. So long to that stress - and hello to a new world of more fluid fundraising.