506(b) and 506(c) Uncovered: What’s the Best Strategy For Your Alternative Investment Business?

Private equity offerings have so much profit potential but marketing it for success can be a bit tricky.

And when we speak of structures, the two options we think of are 506(b) and 506(c). They each come with their own set of pros and cons, tools and challenges.

Now if you want to know which one can take your alternative investment management business to the next level, stick around and we'll break it all down for you.

506(b): The Inclusive Choice

This is like the "come one, come all" strategy because it lets both accredited and non-accredited investors join your journey, expanding your reach.

But here's the deal: it's not so hot on marketing, especially online. No Facebook / Instagram ads and no Google ads to shout about your deals.

Rule 506(b) is part of the SEC’s Reg D that allows anyone to sell securities to an unlimited number of accredited investors and up to 35 non-accredited investors without registration.

Basically, an alternative investment manager can raise any amount of money as long as they do not publicly solicit for those funds.

No online promotion, no paid campaigns.

You also can't bring someone you just met into your current deal — whether they're accredited or not.

You've got to wait for the next opportunity, which, in the world of private equity, can be frustrating when time is money.

Cracking the Code of 506(b) Marketing

So, how do you work around these limitations?

The answer lies in building relationships with the people around you. Start by nurturing those existing connections and expanding your network within your inner circle.

This might mean engaging in more face-to-face interactions, attending local real estate events, or even leveraging your personal contacts.

Also, consider sharing your knowledge and expertise through avenues like podcasts and YouTube channels.

Break down your content into bite-sized pieces that resonate with your audience.

This not only establishes you as an authority in your field but also creates opportunities for potential investors to discover you and your offerings.

506(c): The Digital Megaphone

Now, let's flip the script to 506(c).

This one's a game-changer because with this strategy, you're allowed to shout your deals from the digital rooftops: Facebook, Instagram, YouTube, Google — you name it.

All of these tools can be used to showcase your deal to the larger public.

However, there's a catch here too. With 506(c), you can only bring in accredited investors.

Now what's the big deal about accredited investors?

Accredited investors are individuals or entities who meet certain financial criteria related to income or net worth.

They're considered more financially sophisticated and, in the eyes of the law, better equipped to assess investment risks.

That means you can't have just anyone. And honestly, that just works fine.

Why? Because with this approach, you can streamline investor qualification by exclusively targeting accredited investors online, making everything smoother and faster, potentially leading to more substantial investments.

Its scalability and efficiency, especially when paired with automation tools, make it an ideal strategy for those looking to expand their capital raising efforts.

And just to reiterate, there are online ad platforms that make it easier to find these accredited investors. These platforms have all the nifty tools and databases to help you track down the accredited investors you're after.

This process is a real time-saver, and it ensures you're chatting up the right crowd — people who are genuinely keen and qualified to invest in what you're offering.

Planting Seeds: Graduating from 506(b) to 506(c)

Your 506(b) efforts can actually complement your 506(c) strategies.

This is because all marketing efforts behind 506(b) are purely organic. Think blogs, podcasts, video content on YouTube. So, it doubles as a nice foundation for future paid efforts.

Think of 506(b) as planting seeds, and when it's time for 506(c), you'll have a garden full of engaged investors who already know and trust you.

You can even leverage the positive experiences from 506(b) investors as testimonials to win over future investors in your future 506(c) offerings.

Ultimately, building relationships through 506(b) can set the stage for successful 506(c) campaigns.

In Conclusion

In the 506(b) vs. 506(c) showdown, both have their strengths and weaknesses.

• 506(b) is inclusive but limits your online marketing options.
• 506(c) allows online marketing but restricts your investor pool to accredited individuals.

Whether you lean towards 506(c) or stick with 506(b), finding marketing strategies that work is the key to thriving in the alternative investments business.

So, there you have it — a straightforward look at 506(b) vs 506(c) marketing strategies.

Keep those deals rolling, and remember that with the right marketing strategy, success is within reach.

P.S. If you are a alternative investments manager and you want your investor marketing strategy to catch up, reach out to us. We have a capital raising system that allows you to market effectively and build relationships with accredited investors.

Schedule a call today to ask us any questions.