Switching a fundraising campaign to SEC Rule 506 after general advertising doesn't fix investors who already contributed. The SEC requires a mandatory 30-day pause on all capital-raising if you want to accept non-accredited investors later, which creates problems when a deal has a set closing date.
You ran an ad for a Rule 506 offering. Someone told you just switch to 506 and keep going. Here's the part of that advice that they left out. Switching to 506 going forward is partially correct. Under 506, general advertising is allowed, so the ad you already ran is no longer a problem for future investors. But the advice has 2 gaps. First, the investors who wired before the switch. They came in during a tainted 506 offering. Switching to 506 going forward doesn't fix what already happened to those investors. Those investors are sitting in a tainted offering. That doesn't change. Second, if you ever want to go back to 506, for example, to accept non-accredited investors, the SEC says you have to pause all capital raising activity for 30 days first. 30 days in a live race with a deal under contract and a specific close date. So you're not choosing between 506 and 506. You're choosing between a compliant path you may no longer be able to take and a path that fixes one problem going forward while leaving another one unaddressed. The right move depends on your specific situation. Full breakdown is in the long form. See the link in the bio.
