The SEC Made Public Fundraising Practical for Small Funds — If Your Minimum Is $200,000

Every first-time fund manager in this region eventually asks the same question: can I talk about the fund publicly?

Until recently the practical answer was no, and the reason was not the rule but the paperwork. That changed in March 2025, and the change is meaningful enough that a manager who chose a structure before it should reconsider.

The two exemptions

Rule 506 of Regulation D offers two paths, and they trade the same thing against each other: who you can tell, versus who you can take money from.

Rule 506(b) permits sales to an unlimited number of accredited investors and to “no more than, or the issuer reasonably believes that there are no more than, 35 purchasers” who are not accredited, in any 90-calendar-day period. Those non-accredited purchasers must have “such knowledge and experience in financial and business matters” that they are capable of evaluating the merits and risks of the investment.

The price of that flexibility is silence. No general solicitation, no general advertising. You are limited to people with whom you have a substantive pre-existing relationship.

Rule 506(c) permits general solicitation — a website, a LinkedIn post, a conference panel, a press interview — but imposes two conditions. All purchasers must be accredited investors. And the issuer must “take reasonable steps to verify” that they are.

Why 506(c) was theoretically available and practically unused

Verification is the whole story. The rule offers a non-exclusive list of methods: reviewing IRS forms together with an income representation; reviewing bank and brokerage statements to establish net worth; obtaining written confirmation from a registered broker-dealer, an SEC-registered investment adviser, a licensed attorney, or a certified public accountant; and relying on a prior verification, valid for up to five years with an updated representation.

Every one of those requires an investor to hand over something they would rather not. Asking a prospective limited partner — often someone you know socially, in a region where that is how funds get raised — for two years of tax returns is a conversation most first-time managers would rather avoid. So the practical default became 506(b): stay quiet, work the network, never post about the raise.

What the March 2025 letter did

On March 12, 2025, the SEC’s Division of Corporation Finance issued a no-action letter establishing that an issuer can satisfy the “reasonable steps to verify” requirement without collecting financial documentation at all, provided the offering has high enough minimum investment amounts and the issuer obtains specific representations.

The minimums:

Purchaser	Minimum investment
Natural person	$200,000
Legal entity	$1,000,000
Entity accredited solely through its beneficial owners	$1,000,000, or $200,000 per beneficial owner where the entity has fewer than five natural person owners

Alongside the minimum, the issuer must obtain the purchaser’s written, self-certified representations that the purchaser is an accredited investor and that the investment is not financed by a third party for the specific purpose of making that particular investment. The issuer must have no actual knowledge of facts contrary to those representations.

The logic is straightforward: someone able to write $200,000 into an illiquid private fund, with their own money, is very probably accredited. The size of the check does the verification work that a tax return used to do.

Why this matters more to a regional fund than to a coastal one

The $200,000 minimum sounds like a barrier. For the funds this publication covers, it frequently is not.

A small Upper Midwest fund — call it $15 million to $40 million, the size range where most first-time managers here start — is typically taking commitments of $250,000 to $1 million from individuals. A $200,000 minimum is at or below where that fund already sits. The safe harbor costs it nothing.

The manager it excludes is the one running an angel syndicate on $25,000 checks, or a small friends-and-family vehicle designed to let a wide circle participate. That structure cannot use the safe harbor and stays in 506(b), which means no public marketing. Worth knowing before you set your minimum, because the minimum is now a marketing decision as much as an economic one.

For a first-time manager without a coastal network, the ability to speak publicly is not a minor convenience. It is the difference between raising from the fifty people you already know and raising from everyone in four states who reads about what you are doing.

The tradeoffs that remain

506(c) closes the door on non-accredited investors entirely. Under 506(b) you may include up to 35 sophisticated non-accredited purchasers. Under 506(c) you may include none. For a manager who wants to include a former colleague or an early mentor who does not meet the thresholds, that is a real loss — and it is permanent for that offering.

A no-action letter is staff guidance, not a rule. It represents the position of the Division of Corporation Finance and is conditioned on the specific facts presented. It is not a regulation, it does not bind courts, and it can be withdrawn. Relying on it means relying on it as it is written, including every condition, rather than on a summary of it.

Bad actor disqualification applies either way. Rule 506(d) disqualifies offerings where the issuer or specified covered persons — officers, promoters, compensated solicitors — have particular disciplinary events in their history. This must be diligenced at the fund level before either exemption is available, and it reaches people beyond the manager.

State law does not disappear. Rule 506 offerings are covered securities for purposes of state registration, but notice filings and fees still apply in the states where you sell, and those obligations are separate from the federal analysis.

The practical decision

Ask one question first: what is your minimum check?

If it is $200,000 or more for individuals, 506(c) with the no-action letter’s conditions is now genuinely available, and the ability to market publicly is probably worth more to a first-time regional manager than the ability to accept 35 non-accredited investors.

If your minimum is meaningfully below that, and lowering it is the point of your structure, you are in 506(b). Plan the raise around relationships, and keep the fund off your public feeds — including the LinkedIn post announcing the first close, which is exactly where quiet raises go wrong.

Either way, decide before you start talking. General solicitation cannot be un-rung, and a manager who markets publicly while intending to rely on 506(b) has a problem that is difficult to fix after the fact.

Sources

17 C.F.R. § 230.506, current text — law.cornell.edu (retrieved August 7, 2026). The 35-purchaser limit and 90-day period under (b); the sophistication requirement for non-accredited purchasers; the requirement under (c) that all purchasers be accredited and that the issuer take reasonable steps to verify; the non-exclusive list of verification methods; and the bad actor disqualification under (d).
SEC Division of Corporation Finance no-action letter, March 12, 2025, on verification of accredited investor status under Rule 506(c) based on minimum investment amounts. Terms — the $200,000 and $1,000,000 minimums, the per-beneficial-owner alternative for entities with fewer than five natural person owners, the required self-certified representations regarding accredited status and third-party financing, and the no-actual-knowledge condition — confirmed against contemporaneous analyses published by Morgan Lewis, Ropes & Gray, and Alston & Bird (retrieved August 7, 2026).

We have summarized the no-action letter from secondary analyses rather than the letter itself. Anyone relying on it should read the letter directly — its conditions are specific and a summary is not a substitute.

Nothing here is legal advice, and nothing here is an offer to sell or a solicitation to buy any security.