---
title: "What Is 506(b)?"
term: "506(b)"
description: "Rule 506(b) is a U.S. private offering exemption that lets companies and funds raise capital from accredited investors and up to 35 sophisticated non-accredited investors without general advertising."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["regulation"]
source: https://venturecapitaltracker.com/glossary/rule-506b
---

# What Is 506(b)?

> Rule 506(b) is a U.S. private offering exemption that lets companies and funds raise capital from accredited investors and up to 35 sophisticated non-accredited investors without general advertising.

**Rule 506(b)** is the most common U.S. securities exemption for private fund raises and startup rounds that rely on pre-existing relationships instead of public advertising.

## How it works

Under 506(b), issuers may sell to an unlimited number of accredited investors plus up to 35 non-accredited investors who meet a sophistication standard. The trade-off: no general solicitation or general advertising. That means no mass email blasts to strangers, no paid social campaigns targeting the public, and no "invest now" landing pages open to everyone.

Instead, the GP or company works through networks—existing LPs, angel groups, and introductions. Investors still receive private placement memoranda and sign subscription documents. The issuer must have a reasonable belief that buyers are accredited (or sophisticated, for the small non-accredited bucket). Form D is filed with the SEC after the first sale.

## Why it matters

- **GPs:** 506(b) fits established fund managers who refill each vintage from repeat LPs. Marketing stays relationship-driven, which matches how many institutional allocators prefer to work.
- **Investors:** If someone cold-emails you a 506(b) fund, ask how they sourced your contact. Broad outreach can violate the no-general-solicitation rule and taint the offering.
- **Founders:** Seed and Series A rounds often use 506(b) when angels and VCs come from intros, not public crowdfunding.

## Common mistake

Treating a podcast, newsletter, or conference pitch as harmless marketing when it effectively constitutes general solicitation for a 506(b) raise. Compliance teams draw bright lines; when in doubt, use [506(c)](/glossary/rule-506c) with verified accreditation or stay fully private.

## Related ideas

Regulation D, [accredited investor](/glossary/accredited-investor), Form D filing, and private placement memoranda.

## FAQ

### What is Rule 506(b) in simple terms?

It is an SEC exemption under Regulation D that allows private placements to accredited investors—and a limited number of sophisticated non-accredited investors—while banning general solicitation. You raise through warm intros, not billboards or Twitter ads.

### Why does 506(b) matter?

Most traditional venture funds and startup rounds rely on 506(b) because LPs already know the GP or founder. It keeps compliance simpler than 506(c) but restricts how loudly you can market the deal.


---
Source: https://venturecapitaltracker.com/glossary/rule-506b