Do You Understand SEC Rules Around Fundraising?

Fundraising from investors is a regulated activity in the US. Understand the rules before you start — violations can derail future rounds and create serious legal liability.

The two main exemptions

Most early-stage startups raise under one of two SEC exemptions:

506(b) — the most common route

You can raise from up to 35 non-accredited investors (though this is rare in practice) and an unlimited number of accredited investors. The key restriction: you cannot talk about the raise publicly. No social media posts, no press releases, no public announcements about your fundraising round.

506(c)

You can solicit investors publicly — announce it, post about it, market it. The trade-off: you must verify that every investor is accredited by reviewing documentation (W-2s, letters from a lawyer or accountant are most common). This takes significantly more time and cost, and most founders hire a service to manage the verification process.

Accredited investors only

Unless you're raising under a specific exemption that permits otherwise, only take money from accredited investors. In the US, an accredited investor generally means someone with:

Net worth over $1 million (excluding primary residence), or
Income over $200,000 per year ($300,000 with a spouse) for the past two years.

Taking money from non-accredited investors can complicate or block future fundraising rounds.

A note on friends and family

If you take $50,000 from a family member who isn't accredited, ask yourself: what happens to that relationship if the company fails? The risk is not just legal — it's personal.

The rule of thumb

Only take money from accredited investors.
Don't talk about your raise publicly unless you're under 506(c) and have verified accreditation in place.

When in doubt, talk to a startup lawyer before you start accepting money.