Tag: Rule 506(c)

Crowdfunding for Real Estate Podcast: What’s Actually Working Today?

On By crowdfundattnyIn JOBS Act, Reg CF, Regulation A, Rule 506(c), UncategorizedLeave a comment

Crowdfunding Real Estate Under the JOBS Act

Crowdfunding has long been pitched as a game-changer for raising private capital—opening the door for everyday investors to participate in opportunities once reserved for institutions. But how much of that promise has actually held up?

In a recent episode, crowdfunding attorney Mark Roderick cuts through the noise to explain how the JOBS Act has really reshaped the landscape—and what real estate sponsors need to know before choosing a path.

The Three Paths to Crowdfunding

Not all crowdfunding is created equal. Mark breaks down the three primary frameworks:

  • Regulation Crowdfunding (Reg CF) – Designed to allow non-accredited (“mom and pop”) investors to participate in deals.
  • Rule 506(c) – Allows sponsors to publicly market offerings, but limits investors to accredited individuals.
  • Regulation A (Reg A) – A more complex, mini-public offering that can reach a broader audience but comes with heavier compliance requirements.

While each option has its place, their real-world performance has been far from equal.

Accredited vs. Non-Accredited Investors: Why It Matters

One of the biggest distinctions in crowdfunding comes down to who you’re raising money from.

  • Accredited investors (high-net-worth individuals) bring larger check sizes and fewer regulatory hurdles.
  • Non-accredited investors expand your audience—but significantly increase compliance, cost, and complexity.

This trade-off is at the heart of why certain crowdfunding models have struggled to scale.

Why 506(c) Is Winning

According to Mark, Rule 506(c) has emerged as the clear leader—especially in real estate.

Why?

  • Ability to advertise and market deals publicly
  • Access to larger pools of capital from accredited investors
  • More efficient fundraising with fewer administrative burdens

For many sponsors, it strikes the right balance between flexibility and scalability—making it the current “gold standard.”

The Reality Check on Reg CF

Reg CF was initially celebrated as a way to democratize investing—but in practice, it hasn’t fully delivered.

Challenges include:

  • Smaller individual investment amounts
  • Higher operational and compliance costs
  • Platform dependency and investor management complexity

The result? Many deals struggle to raise meaningful capital at scale, making Reg CF less practical for larger real estate projects.

Does Your Deal Justify Crowdfunding?

Before jumping in, sponsors need to ask a critical question: Is the deal big enough to support the cost and effort?

Crowdfunding isn’t free. Legal, compliance, and marketing expenses can quickly add up—especially for Reg CF and Reg A offerings.

For smaller deals, traditional private capital or relationship-based fundraising may still be the smarter path.

Final Takeaway

Crowdfunding can be a powerful tool—but only when used strategically.

Today, the market is showing a clear trend:

  • 506(c) dominates for efficiency and scalability
  • Reg CF remains limited despite its original promise
  • Reg A works—but only for the right size and structure

For real estate sponsors, success isn’t about choosing the most accessible option—it’s about choosing the one that actually works.

For a deeper dive into Reg CF, 506(c), and Reg A—and what’s truly working in today’s market—listen to the full episode featuring Mark Roderick.

Questions? Let me know.

Markley S. Roderick
Lex Nova Law
10 East Stow Road, Suite 250, Marlton, NJ 08053
P: 856.382.8402 | E: mroderick@lexnovalaw.com

SEC Proposes Major Upgrades To Crowdfunding Rules

On By crowdfundattnyIn Accredited Investor, Angel Fairs, Crowdfunding, Crowdfunding Articles, Crowdfunding Laws, Crowdfunding Portals, Crowdfunding Real Estate, Demo Days, Equity Crowdfunding, General Solicitation, Integration, JOBS Act, Raising Money, Regulation A, Regulation A Plus, Regulation A Plus Primer, Regulation D offerings, Rule 506, Rule 506(b), Rule 506(c), SAFE, SEC, SEC Proposals, SPV, Title II, Title II Crowdfunding, Title III, Title III Crowdfunding, Title IV of the JOBS Act, UncategorizedLeave a comment

The SEC just proposed major changes to every kind of online offering:  Rule 504, Rule 506(b), Rule 506(c), Regulation A, and Regulation CF.

The proposals and the reasoning behind them take up 351 pages. An SEC summary is here, while the full text is here. The proposals are likely to become effective in more or less their existing form after a 60-day comment period.

I’ll touch on only a few highlights:

  • No Limits in Title III for Accredited Investors:  In what I believe is the most significant change, there will no longer be any limits on how much an accredited investor can invest in a Regulation CF offering. This change eliminates the need for side-by-side offerings and allows the funding portal to earn commissions on the accredited investor piece. The proposals also change the investment limits for non-accredited investor from a “lesser of net worth or income” standard to a “greater of net worth or income” standard, but that’s much less significant, in my opinion.
  • Title III Limit Raised to $5M:  Today the limit is $1.07M per year; it will soon be $5M per year, opening the door to larger small companies.

NOTE:  Those two changes, taken together, mean that funding portals can make more money. The impact on the Crowdfunding industry could be profound, leading to greater compliance, sounder business practices, and fewer gimmicks (e.g., $10,000 minimums).

  • No Verification for Subsequent Rule 506(c) Offerings:  In what could have been a very important change but apparently isn’t, if an issuer has verified that Investor Smith is accredited in a Rule 506(c) offering and conducts a second (and third, and so on) Rule 506(c) offering, the issuer does not have to re-verify that Investor Smith is accredited, as long as Investor Smith self-certifies. But apparently the proposal applies only to the same issuer, not to an affiliate of the issuer. Thus, if Investor Smith invested in real estate offering #1, she must still be verified for real estate offering #2, even if the two offerings are by the same sponsor.
  • Regulation A Limit Raised to $75M:  Today the limit is $50M per year; it will soon be $75M per year. The effect of this change will be to make Regulation A more useful for smaller large companies.
  • Allow Testing the Waters for Regulation CF:  Today, a company thinking about Title III can’t advertise the offering until it’s live on a funding portal. Under the new rules, the company will be able to “test the waters” like a Regulation A issuer.

NOTE:  Taken as a whole, the proposals narrow the gap between Rule 506(c) and Title III. Look for (i) Title III funding portals to broaden their marketing efforts to include issuers who were otherwise considering only Rule 506(c), and (ii) websites that were previously focused only on Rule 506(c) to consider becoming funding portals, allowing them to legally receive commissions on transactions up to $5M.

  • Allow SPVs for Regulation CF:  Today, you can’t form a special-purpose-vehicle to invest using Title III. Under the SEC proposals, you can.

NOTE:  Oddly, this means you can use SPVs in a Title III offering, but not in a Title II offering (Rule 506(c)) or Title IV offering (Regulation A) where there are more than 100 investors.

  • Financial Information in Rule 506(b):  The proposal relaxes the information that must be provided to non-accredited investors in a Rule 506(b) offering. Thus, if the offering is for no more than $20M one set of information will be required, while if it is for more than $20 another (more extensive) set of information will be required.
  • No More SAFEs in Regulation CF:  Nope.

NOTE:  The rules says the securities must be “. . . . equity securities, debt securities, or securities convertible or exchangeable to equity interests. . . .” A perceptive readers asks “What about revenue-sharing notes?” Right now I don’t know, but I’m sure this will be asked and addressed during the comment period.

  • Demo Days:  Provided they are conducted by certain groups and in certain ways, so-called “demo days” would not be considered “general solicitation.”
  • Integration Rules:  Securities lawyers worry whether two offerings will be “integrated” and treated as one, thereby spoiling both. The SEC’s proposals relax those rules.

These proposals are great for the Crowdfunding industry and for American capitalism. They’re not about Wall Street. They’re about small companies and ordinary American investors, where jobs and ideas come from.

No, the proposals don’t fix every problem. Compliance for Title III issuers is still way too hard, for example. But the SEC deserves (another) round of applause.

Please reach out if you’d like to discuss.

Amendments and Supplements in a Regulation A Offering

On By crowdfundattnyIn Featured, Filing Financial Statements & Other Reports, Regulation A, Regulation A PlusLeave a comment

Pigeon Point lighthouse USA, California, Big Sur

Your Offering Statement has been qualified by the SEC. Now something changes. Do you have to file something with the SEC? If so, what and how?

Changes Reported on Form 1-U

Some changes must be reported using Form 1-U:

  • If the issuer has entered into or terminated a material definitive agreement that has resulted in or would reasonably be expected to result in a fundamental change to the nature of its business or plan of operation.
  • The bankruptcy of the issuer or its parent company.
  • A material modification of either (i) the securities that were issued under Regulation A, or (ii) the documents (g., a Certificate of Incorporation) defining the rights of the securities that were issued under Regulation A.
  • A change in the issuer’s auditing firm.
  • A determination that any previous financial statements cannot be relied on.
  • A change in control of the issuer.
  • The departure or termination of the issuer’s principal executive officer, principal financial officer, or principal accounting officer, or a person performing any of those functions even if he or she doesn’t have a title.
  • The sale of securities in an unregistered offering (g., Rule 506(c)).

Form 1-U may be used, at the issuer’s discretion, to disclose any other events or information that the issuer deems of importance to the holders of its securities.

NOTE:  If an event has already been reported on an annual or semi-annual report, the same event does not have to be reported again on Form 1-U.

NOTE:  A report on Form 1-U must be filed even if the Regulation A offering has ended.

Amendments

After the offering is qualified by the SEC, the issuer must file an amendment of its Offering Statement “to reflect any facts or events arising after the qualification date. . . .which, individually or in the aggregate, represent a fundamental change in the information set forth in the offering statement.”

Examples of fundamental changes:

  • A change in the offering price of the security.
  • A change in the focus of the issuer’s business, g., we were going to focus on cryptocurrencies, but now we’re pivoting to blockchain-based financial services.
  • The bankruptcy of the issuer.
  • A change in the type of security offered, g., from preferred stock to common stock or vice versa.

An amendment of an Offering Statement must be approved by the SEC before it becomes effective, which means waiting.

Even more important, depending on the nature of the change, the issuer might be required to stop selling securities or even stop offering securities (i.e., shut down its website and all marketing activities) while the amendment is pending.

Supplements

After the offering is qualified by the SEC, the issuer must file a supplement of its Offering Circular to reflect “information. . . .that constitutes a substantive change from or addition to the information set forth” in the original offering circular.

Examples of substantive changes or additions:

  • A new Chief Marketing Officer joined the management team.
  • The issuer’s patent application, disclosed in the original Offering Circular, was approved.
  • The issuer moved its principal office.

Unlike amendments, supplements do not require SEC approval and do not require that that the issuer stop selling or issuing securities. Instead, the supplement must be filed with the SEC within five days after it is first used.

Real Estate Supplements

While its offering is live, an issuer in the real estate business — a REIT, for example — must file a supplement “[w]here a reasonable probability that a property will be acquired arises.” Not when the property is purchased, but when there is a “reasonably probability” that it will be purchased.

The SEC doesn’t specify what information to include in these supplements, except to disclose “all compensation and fees received by the General Partner(s) and its affiliates in connection with any such acquisition.” Including a statement of any significant risks associated with the property is a good idea, too.

Having filed a separate supplement for each property, the real estate issuer must then file an amendment at least once every quarter that consolidates the supplements and includes financial statements for the properties. Notwithstanding the general rule for amendments, however, the issuer doesn’t have to stop offering or selling securities pending SEC approval.

Supplement vs. Amendment

An amendment is required for “fundamental changes,” while only a supplement is required for “substantive changes.” Where to draw the line?

There’s a lot at stake. If an issuer uses a supplement where it should have used an amendment, it will be using an Offering Statement that has not been qualified by the SEC. Meaning, the whole offering will be illegal.

The SEC won’t say whether it believes a given change requires a supplement or an amendment, leaving the decision to the issuer and its lawyer. The SEC will, however, allow an issuer to file an amendment even for non-fundament changes, i.e., where a supplement would have done the trick. Filing an amendment takes a little longer, costs a little more, but eliminates the risk of guessing wrong.

Often, however, an issuer wants to make a change but doesn’t want to go through the amendment process. In those cases, the rule of thumb should be as follows:

Would an investor of ordinary prudence want to re-think his investment decision based on the new information?

If the answer to that question is Yes, the new information should be provided via amendment. If the answer is No, it can be provided supplement.

For example, an investor who liked the cryptocurrency space might not be interested in the financial services space, while the addition of a new CMO might be interesting and useful, but unlikely to affect the investment decision.

Contrary to popular belief, the main risk of this or any other violation of the securities laws is not that the SEC will bring your offering to a screeching halt or fine you. Those things are possible, but the SEC has more important things on its plate. The main risk is that an investor will lose money and hire a clever lawyer, who will then seize on your mistake (or your alleged mistake) as grounds to get the investor’s money back.

Supplement vs. Form 1-U

If a change falls within any of the specified categories of Form 1-U, then it should be reported on Form 1-U rather than via supplement.

If the offering has ended, then supplements are no longer relevant and changes should be reported on Form 1-U.

If the offering is still live and the change does not fall within any of the specified categories of Form 1-U, then it can be reported on either Form 1-U or via supplement, take your pick. However, supplements may not be accompanied by exhibits. So if you need to change or add an exhibit (e.g., you’ve modified your Subscription Agreement or entered into a material contract that doesn’t constitute a fundamental change), you should use form 1-U.

Questions? Let me know.

Simultaneous Offerings Under Rule 506(c) And Regulation S

On By crowdfundattnyIn Crowdfunding, Regulation S, Rule 506(c)Leave a comment

Co-Authored By: Bernard Devieux & Mark Roderick

If you ask one of my partners whether he wants beer or hard liquor, he says “Yes.” That’s the same answer most entrepreneurs give when asked whether they want to raise money from U.S. investors or investors who live somewhere else. Fortunately, if you’re reasonably careful, you can raise money from U.S. investors under Rule 506(c) – otherwise known as Title II Crowdfunding – while simultaneously raising money from non-U.S. investors under Regulation S.

You don’t have to use Regulation S to raise money from non-U.S. investors. You can use Rule 506(c) instead, as long as you take reasonable steps to verify that they’re accredited, just as with U.S. investors. But verification can be difficult with non-U.S. investors. You use Regulation S either because you want to include non-U.S. investors who are non-accredited or because you just don’t want the hassle of verification.

The concept behind Regulation S is simple:  the U.S. government doesn’t care about protecting non-U.S. people. That sounds harsh but think about it this way. If an American citizen is taken hostage in Albania, boom, the U.S. military comes to the rescue. But if a Russian citizen is taken hostage in Albania. . . .well, maybe that’s a bad example these days, but you get the picture.

To implement this concept, Regulation S provides that:

For purposes of section 5 of the Securities Act of 1933 [the law that usually requires the registration of securities offerings], the terms offer, offer to sell, sell, sale, and offer to buy shall be deemed . . . not to include offers and sales that occur outside the United States.

An offer or sale by an issuer of securities will be treated as occurring “outside the United States” only if all of the following requirements are satisfied:

  • The buyer is a non-U.S. person.
  • The issuer follows designated guidelines with legends on the securities, restrictions on resales, etc.
  • The offer is not made to a person in the United States.
  • No “directed selling efforts” are made in the United States.

The first two are relatively easy:  you make sure the investor isn’t a U.S. resident and you put the right words on stock certificates, promissory notes, and other legal documents.

The second two become tricky in Crowdfunding, where everything is done on the Internet.

For example, suppose an issuer maintains a single website advertising its offering of common stock, equally accessible to prospective investors in Iowa and in Spain. The website undoubtedly constitutes an “offer” to investors in Iowa, and is undoubtedly part of a “directed selling effort” in Iowa, no less than if the offering had been advertised in the Des Moines Gazette. Does this ruin the Regulation S offering?

The SEC’s definition of “directed selling efforts,” written in the early 1990s, doesn’t address this situation. And other than confirming that issuers are legally permitted to conduct simultaneous offerings under Rule 506(c) (to U.S. investors) and Regulation S (to non-U.S. persons) so long as each offering complies with its applicable rules, the SEC has not provided specific guidance on how to avoid the “cross-contamination” issue involving websites.

Fortunately, the SEC addressed a very similar issue with intrastate Crowdfunding just last year. Technically, an intrastate offering is allowed only if “offers” are limited to the citizens of one state. Does posting an offering on a website violate that rule, given that the website is visible to everyone? The SEC chose the position more favorable to Crowdfunding (as it almost always does), announcing that an intrastate offering could be advertised on a website as long as the issuer accepts investments only from residents of the state in question.

The SEC’s position on intrastate offerings suggests that it would take a similar position on Regulation S, finding that the use of a single website would not violate either (1) the requirement that no “offers” be made in the U.S., and (2) the requirement that “no directed selling efforts” be made in the U.S. But we don’t know for sure.

To be on the safe(er) side, an issuer would create separate websites, one for the Rule 506(c) offering and the other for the Regulation S offering, and use IP addresses to ensure that the Regulation S website is not visible within the United States. On the Regulation S website, you would also:

  • Have each visitor (and potential investor) verify his, her, or its legal residence before being permitted to see the details of the offering; and
  • Feature prominent disclaimers that U.S. persons are not welcome.

Finally, bear in mind that Regulation S is an exemption from U.S. securities laws. If you’re offering and selling securities to the citizens of another country, you should think about the laws of that country, too.