Regulation D Offerings: Sales to Accredited Investors Predominate

Issuers have an option to include non-accredited investors in a Rule 506(b) offering, but issuers generally do not.  Based on information collected from Form D filings, most participants are accredited. For example, in 2012, only 10% of new offerings include non‐accredited investors. Offerings by financial issuers and REITs are more likely to have non‐ accredited investors (14% of offerings have at least one such investor), while offerings by VC funds only rarely include non‐accredited investors (0.6% of offerings have at least one such investor). Although Rule 506 allows for the participation of non‐accredited investors, they only participated in 11% of the Rule 506 offerings conducted between 2009 and 2012. Only 8% of the offerings by fund issuers included non‐accredited investors, compared to 12% of the offerings by non‐fund issuers.

Adding non-accredited investors is burdensome. First, each non-accredited investor is required to be sophisticated. If the investor is not sophisticated, the investor needs an independent advisor who is sophisticated. Second and more burdensome, the issuer must provide each non-accredited investor Private Placement Memo containing a bundle of disclosures as mandated by an "information delivery requirement" in Rule 502 of Regulation D. Preparing that information may be costly (and may include the costs of obtaining an outside audit), time-consuming and difficult.

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