Out with the old, in with the new
First, let’s talk about Regulation D, Rule 506(b) private placements - the old tried and true method of raising capital. This is probably how you’ve raised capital for decades. This has allowed sponsors to sell their investments to any investor as long as they are accredited OR they meet certain sophistication standards. But there’s a catch.
Investors can only be sourced from your existing network and you can’t solicit to any potential purchasers beyond that. If you somehow obtain a new investor, you have to “establish a relationship” with them, typically this means a 30 day “cooling off” period before you can offer them an investment opportunity. For most time-sensitive deals, this simply isn’t feasible.
Enter the new era - Rule 506(c). This was a piece of legislation included in the JOBS Act that means you can now market your investments to anyone and everyone that will listen. In order to invest, they must still be considered accredited investors, but 506(c) allows you to tap into a completely new stream of capital that was previously inaccessible. This is marketplace investing, your new way to tap into the capital markets.