A Strategic Opportunity Hidden Behind Regulatory Complexity
A real estate fund manager had built a successful track record, consistently delivering strong returns to investors across multiple commercial property acquisitions. Their reputation within their network is solid, but growth was becoming constrained by the fundamental limitation of Rule 506(b): capital cannot be raised using general solicitation.
Rule 506(c) however, offered a compelling solution to this constraint. Under 506(c), the fund could engage in general solicitation, opening opportunities for digital marketing, public presentations, and broader investor outreach that could dramatically expand their capital raising capabilities. The regulation had been available since 2013, yet many fund managers avoided it due to one significant requirement: all investors must undergo third-party accreditation verification to satisfy the “reasonable steps” standard.
This verification requirement created what appeared to be an alternative non-scalable way for Issuers to distribute offerings. Traditional approaches required coordinating separately with CPAs, attorneys, or other qualified professionals to verify each investor’s accredited status. This process typically added days or weeks to the subscription process and created multiple points of potential error where investors might grow frustrated or even abandon their commitment all together.
The 506(c) Adoption Challenge
Despite the marketing advantages of general solicitation, the overwhelming majority of private fund offerings continued to rely on Rule 506(b) rather than 506(c). Industry sources indicated that historically only a small percentage of offerings had adopted Rule 506(c) due to the burdensome verification requirements. The primary barrier wasn’t legal uncertainty—the SEC had provided clear guidance on acceptable verification methods. Instead, fund managers were concerned that the verification process would create enough friction to offset any benefits from expanded marketing reach.
The fund manager had experienced this tension directly. Several potential investors who had expressed strong interest in previous offerings had withdrawn when presented with the separate verification requirements. The additional steps, coordination with third-party professionals, and extended timelines created uncertainty that sophisticated investors simply chose to avoid by seeking alternative opportunities. In essence, it’s just easier to buy an ETF or mutual fund.
However, the strategic potential of general solicitation become hard to ignore. Digital marketing efforts were increasingly sophisticated, enabling precise targeting of accredited investors. Industry conferences and educational webinars could serve dual purposes of thought leadership and investor development. The fund’s investment strategy was particularly well-suited to broader marketing, given its focus on stable, income-producing commercial properties that appealed to a wide range of accredited investors.
Rethinking Verification Integration
Rather than accepting the traditional trade-off between marketing capability and subscription efficiency, the fund manager began exploring whether the verification requirement could be seamlessly integrated into the subscription process itself. The key insight was that verification didn’t need to be a separate, sequential step—it should be an embedded component of a streamlined investor experience.
After identifying this key goal, the fund selected 1776ing’s for its embedded 506(c) verification tool and broader alternatives platform. The platform’s approach was fundamentally different from traditional verification services because it integrated the entire process within the subscription workflow rather than treating verification as a separate prerequisite.
The system coordinated automatically with qualified third-party professionals—CPAs, licensed attorneys, SEC-registered investment advisors, and registered representatives—without requiring investors engage with all parties separately. Most importantly, the verification process occurred in tandem with other subscription activities rather than creating sequential delays.
Seamless Integration and Automated Coordination
Implementation focused on creating an investor experience that felt enhanced relative to traditional 506(b) offerings while satisfying the heightened verification requirements of 506(c). When investors began their subscription process, the platform automatically initiated verification procedures based on their verified accreditation status.
For investors claiming accreditation based on income, the system facilitated secure document submission to qualified professionals who could verify financial information without delays. Investors with substantial net worth could connect with appropriate professionals for asset verification. Those relying on professional certifications (such as registered investment advisors) had their credentials verified through automated database checks.
Throughout this process, investors experienced a single, integrated workflow rather than multiple disconnected requirements. Real-time status monitoring kept all parties informed of verification progress, while automated documentation ensured comprehensive compliance records for regulatory purposes. The fund manager maintained complete visibility into verification status without needing to coordinate manually with multiple third-party professionals.
An Intelligent Workflow
What distinguished 1776ing’s approach was its intelligent management of the verification workflow based on individual investor circumstances. Rather than applying a one-size-fits-all process, the system adapted verification requirements to each investor’s specific situation and preferred verification method.
This adaptive approach meant that investors with straightforward verification needs (such as licensed professionals whose credentials could be verified electronically) experienced minimal additional processes, while those requiring document-based verification received appropriate support and coordination without impacting other investors’ timelines or removing them from the centralized experience.
The audit trail for regulatory requirements was equally sophisticated, generating records that meet SEC safe harbor requirements while requiring no manual compilation from the fund manager or their legal counsel.
Dramatic Results and Strategic Transformation
The embedded verification system enabled the fund to launch their first 506(c) offering with confidence. The results were exceptional: verification completion occurred entirely in-line with the subscription process, with no processing delays compared to their previous 506(b) offerings.
Moreover, the fund could now implement the general solicitation marketing strategies that were previously impossible. They launched targeted digital marketing campaigns to accredited investors, conducted educational webinars open to the public, and presented at industry conferences—all activities that would have violated 506(b) restrictions but were fully permissible under 506(c).
The expanded marketing reach translated directly into increased investor interest and capital commitments. The fund’s next offering attracted investors from geographic markets they had never accessed previously, while maintaining the high subscription completion rates that had characterized their previous private offerings.
Strategic Advantages
After completing the engagement, the fund had fundamentally transformed their capital raising approach. General solicitation enabled them to build brand awareness within the commercial real estate investment community, attracting both direct investors and referral relationships that continued generating opportunities beyond any single offering.
The enhanced marketing capabilities also strengthened their position with property sellers and joint venture partners, who recognized that the fund’s sophisticated investor access could support larger and more complex acquisitions. This created a positive cycle where enhanced capital raising capabilities enabled better deal access, which in turn attracted higher-quality investors.
The comprehensive documentation generated by the automated verification system also provided additional confidence in their regulatory position.
The successful implementation of embedded 506(c) verification demonstrated how regulatory requirements could be transformed from barriers into competitive advantages through thoughtful technology integration and workflow design.
Disclosures:
The content published on the 1776ing Blog is for informational and educational purposes only and should not be considered financial, legal, tax, or investment advice. The insights shared are intended to promote discussions within the alternative investment community and do not constitute an offer, solicitation, or recommendation to buy or sell any securities or investment products.
