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Typical Rule 506 Offerings: Typical Investors

There are few investors in most Rule 506 offerings.

An unlimited number of accredited investors are eligible to purchase securities in Rule 506 offerings, or in any other Regulation D offering. The SEC writes, "Information collected from Form D filings indicates that most Rule 506 offerings do not involve broad investor participation. More than two-thirds of these offerings have ten or fewer investors, while less than 5% of these offerings have more than 30 investors."

There are very few non-accredited investors in Rule 506 offerings.

Up to 35 non-accredited investors who meet certain sophistication requirements are eligible to purchase securities in Rule 506(b) offerings. The SEC writes, "Although Rule 506[(b)] currently allows for the participation of non-accredited investors who meet certain sophistication requirements, such non-accredited investors reportedly purchased securities in only 11% of the Rule 506 offerings conducted between 2009 and 2012. [footnote omitted] Only 8% of the offerings by pooled investment funds included non-accredited investors, compared to 12% of the offerings by other issuers. [footnote omitted]"

There are few Rule 506 offerings that use intermediaries ("private placement agents").

The SEC writes, "... the vast majority of Regulation D offerings are conducted without the use of an intermediary, [footnote omitted] ....

Investors solicited by management (rather than solicited by brokers) are more likely have some kind of pre-existing relationship with the issuer.

The SEC surmises, "... many of the investors in Regulation D offerings likely have a pre-existing relationship with the issuer or its management because these offerings [before Rule 506(c)] would not have been conducted using general solicitation."

Only a small percentage of households with more than $1 million in net worth have invested in Rule 506 offerings.

The SEC writes, "We estimate that at least 8.7 million U.S. households, or 7.4% of all U.S. households, qualified as accredited investors in 2010, based on the net worth standard in the definition of “accredited investor” (figure omitted). [footnote omitted] ... Our analysis, however, leads us to believe that only a small percentage of these households are likely to participate in securities offerings, especially exempt offerings. First, as mentioned above, data from Form D filings in 2012 suggests that fewer than 234,000 investors (of which an unknown subset are natural persons) participated in Regulation D offerings, which is small compared to the 8.7 million households that qualify as accredited investors.