If you’re doing a Regulation D Rule 506b offering, where you’re not allowed to make a solicitation, how are your friends and family and all your contacts supposed to know that you’re doing this offering so that they can invest in it?
My name is Tilden Moschetti. I am an attorney for the Moschetti Syndication Law Group. Our practice focuses exclusively on Regulation D Rule 506c and Rule 506b offerings. This question comes up in the context of Rule 506b: How are syndicators supposed to let their friends and families know about their investment opportunity if they’re not allowed to advertise?
There actually is a very simple answer for this. The rule prohibits the advertisement of the offering as a general solicitation or a general advertisement. Rule 502c specifically limits this; it says there cannot be a general solicitation or general advertising of that offer.
What that means practically is you can let your friends and family know about it. You can even let the world kind of know that you’re doing this thing. But you need to make it clear that they’re not allowed to invest in it. So they can know about it, but there’s no way that they can join in. That way, you’re not making a solicitation of an offer, because there’s no offer there that the general public can invest in. But all of your friends and family certainly can.
Now if somebody in the general public were to see something like that, for example, you put it on your website, and an investor were to see that and give you a call, you would simply let them know: “I’m sorry, this is closed. Right now it is not available to the general public. But I do put together syndications from time to time, and I’m an expert in this industry. Maybe we should have a conversation and we can talk about what your background is and what my background is. And maybe we can work together sometime in the future.” Without an expectation of any future investment, you’re starting to build that relationship with each other, that will allow them in the next deal to probably come in under a Rule 506b offering.
So that’s always good advice to be having those conversations, even if all you’re doing is Rule 506b. One strategy that is oftentimes used is seminars put on by the syndicator. Now it’s not a seminar for the purposes of getting them into any investment that they have today. But it’s an idea to build that reputation and build that relationship and trust with your investors or your potential investors down the road. So that once that relationship is there, they can become a part of your Rule 506b offerings.
My name is Tilden Moschetti. I am the syndication attorney for Moschetti Syndication Law Group. Our whole job is helping you stay in compliance with the SEC and the states under Regulation D Rules 506b and Rule 506c.