Under Rule 506(b), yes. Up to 35 sophisticated but non-accredited investors can participate in a 506(b) offering. These investors must have sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of the investment.
The sophistication standard is not defined by a specific income or net worth figure. It is a facts-and-circumstances test based on the investor's education, professional background, investment experience, and ability to understand the fund's offering documents. Many fund managers use a questionnaire as part of the subscription process to document their reasonable belief that the investor qualifies.
Under Rule 506(c), no. Every investor must be accredited, and you must independently verify their status through SEC-approved methods.
In practice, most private funds accept only accredited investors regardless of which exemption they use. Accepting non-accredited investors triggers additional disclosure requirements, including providing audited financial statements and other information similar to what a registered offering would require.
The 35-person limit on non-accredited investors applies per offering, not per fund. If you have multiple closings, the total across all closings cannot exceed 35 non-accredited investors.
See Rule 506(b) vs. 506(c) for a detailed comparison of the two exemptions.
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