If your long-term goal is to raise $20 million, $50 million, or even more online, it is tempting to think you need to start by building the biggest securities offering available to you. For some companies, that may be the right move. For many others, particularly those working with a limited initial budget, there is a better question to ask first: Have we actually proven that we know how to attract investors online?
That is where a Rule 506(c) offering or Regulation Crowdfunding offering can become useful. Both can allow a company to begin publicly building an investor audience without immediately committing to a massive capital-raising campaign. The initial raise can generate capital, but just as importantly, it gives you a place to develop the marketing, technology, investor relations, and follow-up systems you will need if you intend to raise on a much larger scale.
Raising Capital Online Is More Than Choosing an Exemption
You can have an excellent deal, strong projected economics, experienced management, and perfectly prepared offering documents and still struggle to raise capital. Online fundraising requires its own infrastructure. You need a way to generate leads, educate prospects, stay in front of them, answer questions, manage subscriptions, and follow up with people who may take weeks or months before deciding to invest.
If you have never done those things before, there is value in learning them while the raise is still manageable. A smaller initial offering can become a testing ground for the capital-raising business you ultimately want to create, and mistakes are usually easier to fix before you are trying to deploy a much larger marketing budget.
The securities exemption matters, but it is only part of the equation. The bigger challenge for many sponsors is figuring out how to consistently turn an audience into investors.
Rule 506(c) Gives You Room to Test Public Marketing
For sponsors who expect their initial investors to be high-net-worth investors, Rule 506(c) can be a relatively straightforward place to begin. The exemption allows broad solicitation and public advertising, but all purchasers must be accredited investors and the issuer must take reasonable steps to verify their accredited status.
From a marketing perspective, that gives you considerable freedom to start. You can advertise the offering, run webinars, publish educational content, build landing pages, develop an email list, and see which messages actually cause qualified investors to respond.
What you cannot do is accept an investment from someone who is not accredited, even if that person has been following the company for years and is otherwise interested in the opportunity. For a sponsor whose audience is already concentrated among high-income or high-net-worth investors, that may not be a major problem. For a consumer-facing business or a sponsor with a much broader following, it can become a significant limitation.
But even those limitations can teach you something. If you spend money advertising a 506(c) offering and consistently generate interested prospects who simply do not qualify to invest, you have learned something important about your audience. If the opposite happens and you find that your marketing consistently produces accredited investors, you have also learned something valuable before significantly expanding the campaign.
Regulation Crowdfunding Can Help Build a Broader Investor Base
Regulation Crowdfunding takes a different approach. Eligible companies can currently raise up to $5 million during a 12-month period, and both accredited and non-accredited investors can participate, although investment limits apply to non-accredited investors. The offering must be conducted online through a single SEC-registered intermediary, either a broker-dealer or funding portal.
That structure can be particularly useful when your existing audience does not neatly fit the accredited-investor definition. Maybe you have built a substantial social-media following, customer base, email list, or community around the business. Reg CF can potentially give some of those people an opportunity to become investors rather than simply remaining followers.
Reg CF has its own legal and operational requirements, including Form C disclosures, financial-statement requirements, intermediary involvement, advertising restrictions, and continuing reporting obligations. The SEC’s rules also limit how much non-accredited investors may invest across crowdfunding offerings.
For the right company, however, the value extends beyond the dollars raised. You are beginning to learn how a broader public audience behaves when you actually ask them to invest.
Your First Offering Should Build More Than the Bank Account
The obvious measure of success in a capital raise is how much money comes in. I would also pay close attention to what the company has built by the time the offering is over.
Do you now have thousands of investor prospects in a CRM instead of several hundred? Have you learned which webinar works, which advertising channels produce poor leads, how frequently people need follow-up, and which questions consistently stop investors from moving forward? Perhaps most importantly, do you now have investors who have completed the process once and may consider investing with you again?
Those assets matter because raising larger amounts of capital usually requires more than finding individual investors. It requires a repeatable process for attracting, educating, converting, and maintaining investor relationships.
A sponsor who finishes an initial offering with a functioning CRM, a growing email database, a proven webinar, documented follow-up procedures, marketing data, and a group of existing investors has built something much more valuable than a single completed raise. The next offering does not have to start at zero.
Use a Smaller Raise to Learn the Economics of Investor Acquisition
There is another question that becomes increasingly important as your capital raises get larger: What does it cost you to acquire an investor?
Suppose you spend $10,000 on a campaign. How many people become leads? How many attend the webinar, schedule a call, review the offering, and ultimately invest? Just as importantly, what is the average investment amount from those investors?
Without that information, it is very difficult to intelligently budget for a much larger raise. Spending $100,000 on investor marketing is not necessarily aggressive if you already understand the economics of your funnel. Spending $100,000 because you hope it will work is an entirely different situation.
A smaller offering gives you an opportunity to collect that information in the real world. You can test messaging, advertising channels, lead sources, sales processes, and investor education while making incremental adjustments instead of trying to perfect everything before launch.
That experience can become one of the strongest foundations for scaling later.
Build the Investor Relationship Beyond the First Check
One of the biggest advantages an experienced capital raiser has over someone launching a first offering is not necessarily a better deal. It is an existing investor base.
Someone who has already invested with you knows how you communicate, how your reporting works, whether distributions arrived when expected, how you handled problems, and what it feels like to be one of your investors. That relationship can be difficult for a new sponsor to replicate through advertising alone.
This is why smaller raises can have an outsized long-term value. Fifty, one hundred, or several hundred investors from an early offering may eventually become repeat investors, referral sources, and the foundation of a much larger capital-raising business.
You are also learning how to support them. Investor communications that seem simple with 25 people become very different with 250, and eventually very different again with thousands. Building those procedures progressively can be considerably easier than trying to create them for the first time at scale.
Smaller Does Not Mean Thinking Small
Starting with a smaller offering does not mean your ambition has to be smaller. It means you are using the first raise to prove the parts of the capital-raising business that need to work before you put substantially more money behind them.
Rule 506(c) may make sense when your target audience is primarily accredited investors and you want broad marketing flexibility. Regulation Crowdfunding may make more sense when your audience includes a larger number of non-accredited investors and you want to begin converting that community into an investor base. The right approach depends on your audience, the amount you need to raise, the business being funded, and what you are trying to build over the next several years.
There also does not need to be one predetermined destination. A company may conduct progressively larger offerings, launch additional funds, change exemptions as its investor audience evolves, or develop an entirely different capital strategy as the business grows.
The important thing is that each raise can leave you better positioned for the next one. Capital is part of what you are building, but so are the audience, data, systems, investor relationships, and experience that make larger raises possible.
If you are considering an online capital raise and are not sure where to begin, Dodson Legal Group can help you evaluate the available securities strategies and how they fit into your longer-term plans. Schedule a free attorney consultation and we can discuss the investors you want to reach, your initial budget, how much capital you ultimately want to raise, and which structure makes sense for what you are trying to build.
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A sponsor who has a working investor funnel, an established audience, prior investors, and actual marketing data is in a very different position from a sponsor who gets an offering qualified and then begins figuring out where the investors might come from.
The First Raise May Also Help Capitalize the Next Stage
There is also a financial reason to think about the offerings as part of a progression. Regulation A requires meaningful upfront investment before the offering is ready to sell securities, including legal work, accounting, audits, filing vendors, and other organizational costs.
For qualifying real estate series offerings and real estate funds, Dodson Legal Group currently offers a $35,000 flat legal fee for the Regulation A legal work. That is only the legal component of the overall buildout, so a sponsor still needs to plan for the other expenses involved in getting the platform ready.
In the right structure, an earlier offering may be able to help capitalize that growth. Our Regulation A planning materials specifically contemplate using a preliminary Rule 506(c) raise as one possible strategy for funding legitimate business and organizational expenses associated with building toward Regulation A.
This is an area where the planning needs to happen before the money is raised. The use of proceeds has to be properly disclosed, the expenses have to be appropriate, and the relationship between the offerings needs to be structured correctly. The idea is not simply to take investor money from one raise and use it however you want; it is to build a capital plan that anticipates what comes next.
When Does Regulation A Become Worth the Jump?
At some point, the exemption that helped you get started may begin creating its own limitations. That is often when Regulation A deserves a closer look.
With 506(c), the problem may be the number of interested prospects you cannot accept because they are not accredited. With Reg CF, the issue may simply be size: Regulation Crowdfunding is currently capped at $5 million during a 12-month period.
Tier 2 Regulation A moves that ceiling to $75 million during a 12-month period and allows participation by accredited and qualifying non-accredited investors. It also comes with a much more substantial compliance framework, including audited financial statements and ongoing SEC reporting.
That extra infrastructure starts to look very different when you already have an investor-acquisition machine worth scaling. If your marketing consistently produces investors, you have a growing database, prior investors are reinvesting, and the current exemption is now restricting how much you can raise or who can participate, the economics of Regulation A may begin to make a lot more sense.
There Is No Required Path
This should not be interpreted as a formula that says every capital raiser starts with 506(c), moves into Reg CF, and eventually graduates to Regulation A. A sponsor with an established national audience and the budget to support a large raise may have every reason to go directly into Regulation A. Another sponsor may use 506(c) for years and never need anything else.
There are also legal considerations when multiple offerings occur close together or when different exemptions are being used as part of a larger strategy. Integration rules, communications, disclosure, use of proceeds, and the requirements of each exemption all need to be considered. This is why the progression should be planned before one offering simply gets stacked on top of another.
What matters is understanding that the securities exemption can grow with the capital-raising business. You do not necessarily need to pay for the final version of the platform before you have proven that the business behind it works.
Build Toward the Raise You Ultimately Want
A limited budget does not necessarily mean you need to limit your long-term capital-raising goals. It may simply mean that the smartest first step is building the audience, marketing system, investor relationships, and financial resources that make the larger offering practical.
Rule 506(c) and Regulation Crowdfunding can each provide a way to begin that process. For the right company, Regulation A can later become the structure that allows a proven strategy to operate at a much larger scale.
If you are trying to decide where your online capital raise should begin, Dodson Legal Group can help you look at the entire progression rather than only the next offering. Schedule a free attorney consultation and we can discuss the investors you want to reach, the budget you have today, how much capital you ultimately want to raise, and which securities strategy makes sense for what you are trying to build.
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