Regulation D 506(c) Guide: Private Placement Investing

The Ad That Changed Everything

For most of American financial history, you couldn't advertise a private investment.

Seriously. If you were raising money for a real estate deal, a startup, or a private fund, you couldn't run ads. You couldn't post on social media. You couldn't even send an email to someone you didn't already know. The SEC considered it "general solicitation," and it was forbidden.

This meant private investments spread the old-fashioned way: whispered conversations at country clubs, referrals from family offices, handshakes between people who already had money and connections.

If you weren't in the network, you didn't know these deals existed.

Then, in 2012, something remarkable happened. Congress passed the JOBS Act, and tucked inside was a provision that would crack open a door that had been sealed for 80 years.

Starting in 2013, issuers could publicly advertise private offerings — put them on websites, run Google ads, promote on LinkedIn — as long as they verified that every investor was actually accredited.

That rule change has a name: Regulation D Rule 506(c).

It's why you now see private real estate deals in your social media feed. It's why platforms like AngelList and Fundrise exist. It's why someone who isn't part of the old-money network can discover opportunities that used to be invisible.

But here's the catch: just because you can see more deals doesn't mean you should invest in more deals. The door is open wider, but the lions are still inside.

This guide explains how 506(c) works, what it means for you as an investor, and how to navigate this new landscape without becoming someone else's lesson.

"506(c) democratized access to private investments. That's genuinely good. But it also democratized access to bad private investments. The same rule that lets legitimate operators reach you also lets sketchy operators reach you. Your filter matters more than ever."

— Kenton Gray, Founder & CEO, Veracor Group

The Basics: What Is Regulation D?

Before we dive into 506(c), let's zoom out. Regulation D is the broader framework that makes private investments possible.

The Problem Reg D Solves

When a company wants to raise money by selling securities (stocks, bonds, fund interests, etc.), federal law generally requires them to register the offering with the SEC. This means:

Extensive disclosure documents
Audited financial statements
Ongoing reporting requirements
Legal and accounting costs in the hundreds of thousands (or millions)
Months of preparation

For a company going public or raising hundreds of millions, this makes sense. For a small business raising $2 million or a real estate developer funding a single project, it's absurdly impractical.

Regulation D provides exemptions. It says: if you follow certain rules, you can raise money privately without full SEC registration.

This is why private investments exist at all.

The Regulation D Menu

Reg D offers several exemptions. The ones that matter for most private investments:

Rule 504: Raise up to $10 million in a 12-month period. Fewer restrictions, but limited scale.

Rule 506(b): Raise unlimited amounts, but no general solicitation (advertising). You can only offer to people you already have a relationship with. Up to 35 non-accredited investors allowed (but rarely used).

Rule 506(c): Raise unlimited amounts AND advertise publicly. But everyone must be accredited, and you must verify their status (not just take their word).

For most serious private investments — funds, syndications, large offerings — it's 506(b) or 506(c).

The Trade-Off

Think of it as a simple choice:

506(b): Quiet. No advertising. Relationship-based. Self-certification usually sufficient.

506(c): Loud. Can advertise anywhere. Open to all. But verification is mandatory and rigorous.

Same underlying investment. Different rules about who can know about it and how you prove you qualify.

506(b) vs. 506(c): The Real Differences

Let me lay this out clearly, because the distinction matters for how you'll experience investing in private markets.

The Comparison Table Everyone Needs

Factor	506(b)	506(c)
Can they advertise?	No	Yes
How do you find deals?	Relationships, referrals	Websites, ads, platforms
Who can invest?	Accredited investors + up to 35 sophisticated non-accredited	Accredited investors only
How do you prove status?	Self-certification (check a box)	Verification required (documents or third-party)
Pre-existing relationship required?	Technically yes	No
Where you'll encounter them	Private bank referrals, advisor networks, family offices	Online platforms, social media, email marketing

What This Means in Practice

506(b) investments feel exclusive. Someone brought you in. There's an implicit vetting — if you know the right people, you must be the right people. The experience is: "My advisor mentioned an opportunity..." or "A friend is raising capital for..."

The downside: you only see what your network sees. If your network doesn't include real estate developers or fund managers, you don't see those deals.

506(c) investments feel accessible. You can discover them yourself. Google "real estate syndication" and you'll find dozens. Browse LinkedIn and sponsored posts appear. The door is visibly open.

The downside: every operator can now reach you, including bad ones. The filtering that came naturally from relationship-based access now falls entirely on you.

"506(b) deals are like invitations to a private party — someone vouched for you. 506(c) deals are like public events with a dress code — anyone can try to get in, as long as they meet the requirements. Neither is inherently better. But they require different approaches."

— Kenton Gray

The Verification Process: What to Expect

Under 506(c), issuers can't just take your word that you're accredited. They must take "reasonable steps" to verify. The SEC provided safe harbors — specific methods that definitively satisfy the requirement.

Verifying Income

Option A: Document Review

The issuer (or someone acting on their behalf) reviews your tax documents:

IRS Form W-2 for wage income
Schedule K-1 for partnership/S-corp income
Form 1099 for various income types
Tax returns (Form 1040) showing total income

They need documents for the two most recent years, plus your written statement that you reasonably expect to meet the threshold in the current year.

What you'll provide:

W-2s or K-1s for past two years
Signed statement about current year expectations

Option B: Professional Letter

A qualified professional confirms your income in writing:

CPA
Attorney
Registered Investment Advisor
Licensed broker-dealer

The professional must have reviewed your situation within the last 90 days and confirm you meet income thresholds.

What you'll provide:

Letter from your CPA/attorney/advisor
Letter must be dated within 90 days

Verifying Net Worth

Option A: Document Review

The issuer reviews documentation of your assets and liabilities:

For assets:

Bank and brokerage statements
Retirement account statements
Property appraisals or tax assessments
Business valuations

For liabilities:

Credit report (to capture debts)
Mortgage statements
Loan documents

Everything should be dated within 90 days.

Option B: Professional Letter

Same as income — a qualified professional confirms net worth based on their review.

Verifying Professional Credentials

If you qualify through Series 7, 65, or 82:

Provide license documentation
Issuer verifies through FINRA BrokerCheck or similar registries

This is the most straightforward path if you have the credentials.

Third-Party Verification Services

Many investors (myself included) prefer using third-party services:

Popular options:

VerifyInvestor.com
Parallel Markets
Accredify
Early IQ

How it works:

You create an account and upload documents
They verify your status
They provide a verification letter to any fund that requests it
Your actual financial documents stay with the service, not the fund

Cost: $50-150 per verification

Validity: Usually 90 days

Why bother:

Privacy — funds don't see your tax returns
Convenience — one verification works for multiple investments
Speed — faster than gathering documents each time

"I use a verification service myself. Not because I have anything to hide, but because I'd rather not send my tax returns to every fund I evaluate. One relationship, one set of documents, clean letters when I need them."

— Kenton Gray

Understanding the Private Placement Memorandum

If you're investing through 506(c), you'll receive a Private Placement Memorandum — the PPM. This document is where the truth lives, for better or worse.

What Is a PPM?

A Private Placement Memorandum is the disclosure document for a private offering. It's not filed with the SEC (that's the whole point of the exemption), but it's prepared to:

Inform you about the investment
Disclose material risks
Protect the issuer legally if things go wrong

Think of it as the issuer saying: "Here's what we're doing, here's what could go wrong, and by investing you acknowledge we told you."

Key Sections to Actually Read

Most PPMs run 80-200 pages. Nobody reads them cover to cover. But certain sections are non-negotiable:

Executive Summary / Business Description

What are they actually doing? Real estate development? Operating a business? Buying existing assets? If you can't explain the business model after reading this section, that's a red flag.

Risk Factors

This is where lawyers get creative. Everything that could possibly go wrong is listed here. Your job: distinguish between standard legal CYA language and risks that are genuinely elevated for this specific deal.

Generic risk: "Real estate values may decline."

Specific risk: "The property is located in a flood zone without coverage."

The specific ones matter. The generic ones are just legal protection.

Use of Proceeds

Where does your money go? A typical breakdown:

Use	Percentage
Property acquisition	75%
Renovation/improvements	12%
Reserves	5%
Offering costs (legal, marketing)	4%
Organizational costs	2%
Broker fees	2%

Watch out for:

Excessive fees (anything over 10-12% in "soft costs" is questionable)
Vague categories ("working capital" without explanation)
Broker fees that seem high

Management and Compensation

Who's running this? What are they paid?

Typical fund economics:

Management fee: 1-2% of committed capital annually
Carried interest: 20% of profits above a preferred return
Other fees: Acquisition fees, disposition fees, asset management fees

None of this is inherently bad — managers deserve compensation. But you should understand exactly what you're paying and compare to industry norms.

Conflicts of Interest

This section discloses situations where the manager's interests might diverge from yours.

Examples:

Manager also owns the property management company (gets fees either way)
Manager has other funds competing for the same deals
Manager receives fees regardless of performance

Conflicts aren't disqualifying, but they should be disclosed and managed.

Prior Performance (Track Record)

If the manager has run prior deals, results should be disclosed here.

What to look for:

Realized returns (deals that actually exited), not projected
How performance compared to projections
Any deals that lost money
Consistency across deals

What to be skeptical about:

Only showing winners
"Projected" returns on unrealized investments
Unusual IRR calculations

The Subscription Agreement

Alongside the PPM, you'll sign a subscription agreement — the actual contract where you commit capital.

Key provisions:

Amount you're investing
Representations about your accredited status
Acknowledgment that you received and read the PPM
Power of attorney for fund documents (standard)
Signature and wire instructions

Critical: When you sign the subscription agreement and wire money, you're in. This isn't like buying stocks where you can sell tomorrow if you change your mind. Understand what you're committing to.

How 506(c) Deals Actually Work: A Walk-Through

Let me map out the typical 506(c) investment process so you know what to expect.

Step 1: Discovery

You find the deal. Unlike 506(b), this could happen many ways:

Online search
Social media ad
Email from platform
Podcast or webinar
Article or blog post
Direct marketing from the sponsor

Your job at this stage: Stay curious but skeptical. Finding a deal is just the beginning.

Step 2: Initial Review

You request information. Most sponsors have:

Executive summary or pitch deck (5-20 pages)
Webinar or recorded presentation
Basic terms (minimum investment, projected returns, timeline)

Your job: Does this opportunity even make sense for you? Right asset class? Right timeline? Reasonable minimums? Don't waste time on deals that are fundamentally misaligned.

Step 3: Verification

Before receiving the full PPM, most sponsors require verification of your accredited status.

Process:

Submit documents directly, or
Provide letter from third-party verification service

Timeline: A few days to a couple weeks

Note: Some platforms maintain verified investor databases. Once verified, you can access multiple offerings without re-verifying each time (within the 90-day window).

Step 4: Document Review

You receive the full PPM and subscription documents.

Your job: Actually read them. Or have your attorney read them. At minimum, review the sections I outlined above.

Questions to ask:

Does the business thesis make sense?
Are the risks reasonable for the potential return?
Is the fee structure fair?
Is management aligned (co-investment)?
What's the exit strategy?

Step 5: Due Diligence

Go beyond the documents.

Research the manager:

Google them (plus key words like "lawsuit" or "SEC")
Check FINRA BrokerCheck
Search SEC EDGAR for any public filings
Ask for references from prior investors

Evaluate the deal:

For real estate: Research the market, comparable properties, economic drivers
For operating businesses: Understand the competitive landscape
For funds: Review historical performance

Consult your team:

CPA: Tax implications, K-1 timing, how this fits your situation
Attorney: Document review, key provisions, red flags
Financial advisor: Portfolio fit, liquidity considerations

Step 6: Commitment

If you proceed:

Sign the subscription agreement
Complete any remaining paperwork
Wire funds to the investment's designated bank account

Important: Once money is wired, you're in. Some offerings have acceptance periods where the manager can reject subscriptions, but once accepted, you're committed.

Step 7: Confirmation

You receive:

Confirmation of investment
Copy of executed documents
Information about reporting and communication

Step 8: Ongoing

As an investor, you typically receive:

Quarterly or annual reports
Annual K-1 for tax filing
Capital call notices (if applicable)
Distribution notices (if applicable)
Exit proceeds (eventually)

The Good, The Bad, and The Scammy

506(c) has been transformative. But not every transformation is purely positive.

The Good

Access expanded dramatically. Investors who weren't connected to the old-money network can now discover legitimate opportunities. A first-generation professional can access the same deals available to established families.

Transparency increased. When you can advertise, you're also more visible. Sponsors know they're operating in public view, which creates some accountability.

Innovation flourished. Platforms like Fundrise, CrowdStreet, and AngelList exist because of 506(c). They aggregate investors, source deals, and create accessibility that didn't exist before.

Competition benefits investors. When sponsors can market directly, they compete on terms, not just relationships. This has pushed some (not all) to offer better economics.

The Bad

Noise increased exponentially. Your LinkedIn is now full of "investment opportunities." Your inbox has syndication pitches. Everyone with a deal is trying to get your attention. Signal-to-noise ratio dropped.

Marketing isn't due diligence. Slick websites and professional videos don't mean good investments. In fact, sometimes the best operators have the worst marketing (they're busy operating), while the best marketers have mediocre operations.

Pressure tactics appeared. "Only 3 spots left!" "Closing Friday!" "Oversubscribed — we're doing you a favor." When you can advertise, you can also manipulate. The old relationship model had its own pressures, but they were different.

Quality variance widened. The same rule that lets excellent sponsors reach you also lets terrible sponsors reach you. Without relationship-based filtering, the range of quality you encounter is much wider.

The Scammy

Let me be direct: the 506(c) landscape includes outright fraud and near-fraud.

Red flags to watch:

Warning Sign	What It Suggests
Guaranteed returns	Nothing is guaranteed. Anyone promising is lying or deluded.
Pressure to invest quickly	Legitimate deals can wait for due diligence.
Can't explain the business model clearly	Complexity can hide problems.
No track record but claims expertise	Everyone's a first-time manager once, but they should price accordingly.
Manager won't disclose co-investment	If they won't put their own money in, why should you?
Difficulty getting references	Prior investors should exist and be willing to talk.
PPM filled with errors or seems unprofessional	Document quality often reflects operational quality.
Pushy salespeople who can't answer questions	Real managers understand their deals deeply.

"The best 506(c) investments I've seen are just like the best 506(b) investments — strong managers, clear thesis, fair terms, aligned interests. The advertising is just how you found them. The worst 506(c) investments are predatory marketing operations that happen to have an investment attached. Your filter is everything."

— Kenton Gray

What Experienced Investors Look For

After a decade of evaluating private opportunities, here's what actually matters.

Manager Quality Over Everything

The single biggest predictor of private investment success is manager quality. Not market timing. Not asset class selection. The people running the deal.

What to evaluate:

Track record: Not projected returns — actual realized results. How did prior deals perform? Did they hit projections? What went wrong when things didn't work?

Alignment: How much of the manager's own money is invested alongside yours? Someone with significant co-investment feels the same pain you do if things go south.

Team stability: Have the key people worked together before? How long? High turnover is a warning sign.

Integrity markers: Do they answer questions directly? Do they acknowledge risks honestly? Do references check out?

Operational capability: Can they actually execute what they're proposing? Having a good idea is different from being able to implement it.

Terms That Make Sense

Fees should be reasonable:

Management fee: 1-2% is standard
Carried interest: 20% is standard, usually above a 6-8% preferred return
Other fees: Should be disclosed and justifiable

Alignment should be built in:

Preferred return to investors before manager participates in profits
Manager co-investment (ideally 5-10%+ of their net worth)
Clawback provisions if early profits reverse

Liquidity should be clear:

How long is capital locked up?
What's the expected hold period?
Are there any early exit provisions?

Thesis Clarity

Can the manager explain in two sentences why this investment should work?

Good: "We're buying undervalued apartment buildings in markets with strong population growth, renovating units to increase rents, and selling to institutional buyers at stabilized values."

Bad: "We're deploying capital across multiple asset classes to generate risk-adjusted returns through our proprietary methodology."

If it sounds like marketing-speak, it probably is.

Risk Acknowledgment

I trust managers who tell me what could go wrong more than managers who only paint rosy pictures.

Questions to ask:

What's the biggest risk to this investment?
What happened in your worst-performing deal?
Under what market conditions would this fail?
What's your plan if [specific scenario] happens?

Managers who can't articulate risks either don't understand their business or aren't being honest. Neither is good.

Common Mistakes (And How to Avoid Them)

I've watched investors make these mistakes repeatedly. Learn from their tuition.

Mistake 1: Investing Based on the Pitch, Not the Documents

The pitch deck is marketing. The webinar is sales. The PPM is disclosure.

Plenty of investments sound great in the pitch and reveal problems in the documents. Don't commit until you've read — actually read — the PPM and subscription agreement.

"I've seen investors wire six figures based on a webinar and a conversation. Then when the deal goes sideways, they finally read the PPM and discover everything was disclosed — they just didn't look. The document is there for a reason. Use it."

— Kenton Gray

Mistake 2: Skipping Background Checks

Googling someone takes five minutes. FINRA BrokerCheck takes two minutes. SEC EDGAR searches take another five.

You're considering giving someone your capital for 5-10 years. Spend 15 minutes confirming they don't have a trail of lawsuits, regulatory actions, or failed ventures behind them.

Mistake 3: Confusing Marketing Quality with Investment Quality

Some of the best operators I know have terrible websites. They're busy operating, not marketing.

Some of the worst operators have gorgeous sites, professional videos, and slick materials. They're better at raising money than deploying it.

Never assume that production value correlates with investment quality. It often correlates inversely.

Mistake 4: Not Talking to Prior Investors

Ask for references. Call them. Ask:

Did returns match projections?
Did they communicate well, including when things went wrong?
Were there any surprises?
Would you invest with them again?

If a manager won't provide references, or if references are only from friends and family, that's a red flag.

Mistake 5: Ignoring Liquidity Reality

"It's only 7-10 years" sounds manageable. But life happens.

Job loss
Health crisis
Divorce
Unexpected opportunity requiring capital
Market crash making you nervous

Private investments don't care about your circumstances. You can't sell when you want. Only invest what you genuinely won't need for the full term, in any scenario you can reasonably imagine.

Mistake 6: Concentrating Too Heavily

Your first private investment is exciting. Your tenth is normal. Somewhere in between, investors tend to get overconfident.

Diversification matters in private markets too. Don't put 30% of your net worth in one syndication. Don't bet everything on one fund manager's success.

Mistake 7: Investing to Feel Sophisticated

Private investments aren't status symbols. They're tools with specific purposes.

If you're investing because it feels exclusive, because you want to mention it at parties, or because you're chasing a lifestyle image — you're making decisions for the wrong reasons.

The best private market investors I know are boring about it. They evaluate dispassionately, diversify carefully, and don't need the ego boost.

The Veracor Approach to 506(c)

We use 506(c) for our funds. Here's why and how we think about it.

Why We Chose 506(c)

Reach: We want to connect with aligned investors wherever they are, not just those who happen to know someone who knows us.

Transparency: Public visibility keeps us accountable. We operate knowing that what we do is discoverable.

Efficiency: Building a fund on relationships alone limits scale. 506(c) lets us reach investors who share our values but wouldn't otherwise find us.

How We Approach Verification

We work with established verification services to make the process smooth. Most investors complete verification in 24-48 hours.

We don't need to see your tax returns or bank statements. We need a letter confirming you qualify. Your privacy matters.

What We Disclose

Our PPMs are written to inform, not obscure. We want you to understand:

Exactly what we're investing in and why
What could go wrong (specifically, not generically)
How we're compensated and where interests might diverge
Our track record, including deals that didn't go as planned

If after reading our documents you have questions, that means you're reading carefully. We welcome questions.

How We Think About Investor Fit

Not every accredited investor is right for our funds. We look for:

Time horizon alignment: Our investments are patient capital strategies. If you need liquidity in 3 years, we're not the right fit.
Risk understanding: You've read the materials and understand what could go wrong.
Values compatibility: Our Four Pillars framework (Home, Health, Finance, Technology) and ROSI approach resonate with you.
Reasonable expectations: You're looking for strong risk-adjusted returns, not moonshots.

We'd rather have fewer aligned investors than more misaligned ones. Misalignment creates problems for everyone.

Frequently Asked Questions

About 506(c) Rules

Q: Can I invest in a 506(c) offering if I'm not accredited?

No. Unlike 506(b), which allows up to 35 sophisticated non-accredited investors, 506(c) is accredited-only. No exceptions.

Q: Why would an issuer choose 506(b) instead of 506(c)?

Simpler verification (self-certification usually works), ability to include some non-accredited investors, and preference for relationship-based capital. Some managers don't want to advertise or deal with verification complexity.

Q: Does the SEC review 506(c) offerings?

No. 506(c) offerings file a Form D notice with the SEC, but there's no approval or review process. The SEC doesn't vet these investments. Due diligence is entirely on you.

Q: Are 506(c) investments riskier than 506(b)?

Not inherently. The underlying investment is the same — only the offering mechanics differ. However, because 506(c) allows advertising, you may encounter a wider range of quality (including more questionable operators). Your filter matters more.

About Verification

Q: How long does verification take?

Through a verification service: typically 24-72 hours. Through document submission: a few days to a couple weeks depending on the issuer.

Q: How long is verification valid?

Typically 90 days. For ongoing investing, maintain current documentation or use a service that keeps your profile active.

Q: Can I use the same verification for multiple investments?

Yes, within the validity period (usually 90 days). Many investors maintain verification status with a service and provide letters as needed.

Q: What if I don't want to share my financial details with the fund?

Use a third-party verification service. They review your documents and provide a letter to the fund. The fund sees the letter, not your tax returns.

About the Investment Process

Q: What happens after I invest?

You'll receive periodic reports (typically quarterly or annually), annual K-1s for taxes, and notices about capital calls, distributions, or significant events. Eventually, you'll receive exit proceeds.

Q: Can I exit early if I need to?

Usually no, or only under very limited circumstances. Private investments are illiquid by nature. Some secondary markets exist for larger fund interests, but transaction costs are high and discounts are common.

Q: What if the investment fails?

You could lose part or all of your investment. Private investments don't have FDIC insurance or public market liquidity. This is why accreditation requires financial cushion — you need to absorb potential losses.

The Bottom Line

506(c) changed private markets. The door that was once invisible is now visible to anyone willing to look.

That's genuinely good. Access shouldn't depend on accidents of birth or social network. Smart investors without old-money connections deserve to see opportunities that can build wealth.

But visibility isn't protection. The same rule that lets legitimate sponsors reach you lets everyone reach you. Your filter — your due diligence, your skepticism, your willingness to walk away — is what protects you now.

The best approach:

Stay curious but skeptical
Verify before you engage deeply
Read the documents (really read them)
Check backgrounds and references
Understand liquidity and be honest about your needs
Only invest what you can afford to lock up and potentially lose

Private markets can be a powerful component of wealth-building. 506(c) made them accessible. What you do with that access is up to you.

"The rule opened the door. Walking through wisely — that's on you. The investors who thrive in 506(c) markets are the ones who treat accessibility as opportunity, not as permission to stop thinking critically. More access means more responsibility, not less."

— Kenton Gray, Founder & CEO, Veracor Group

Resources

Ready to explore 506(c) opportunities with Veracor?

Schedule a conversation: veracorgroup.com/consultation
Email us: [email protected]
Learn about our funds: veracorgroup.com/investments

Related guides:

The Complete Guide to Opportunity Zone Investing
Accredited Investor Guide: Requirements, Verification & Opportunities
Due Diligence Checklist: Evaluating Private Investments

Important Disclosures

This guide is for informational and educational purposes only and does not constitute investment, tax, or legal advice.

Regulation D offerings involve significant risks including loss of principal, illiquidity, and limited disclosure compared to public securities. Past performance does not guarantee future results.

The SEC does not review, approve, or endorse any private offering. Due diligence and investment decisions are solely the responsibility of the investor.

Securities offered through properly registered broker-dealers to accredited investors only.

Last updated: January 2026

Regulation D 506(c): The Complete Guide to Private Placement Investing

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