October 14, 2026
Yes, but you almost never should. Rule 506(b) is the exemption most startups use. It lets you sell to any number of accredited investors and up to 35 sophisticated non-accredited investors. But taking even one non-accredited investor triggers disclosure requirements that usually cost more than the check is worth. If you want many small checks from the public, Regulation Crowdfunding (up to $5 million in 12 months) is built for that.
Selling stock, SAFEs or convertible notes is selling securities. You must either register the offering with the SEC, which is impractical for a startup, or fit within an exemption. Most startup rounds rely on Section 4(a)(2) or Regulation D, and Regulation D is built around the “accredited investor.” A Rule 506 offering also gets a valuable extra: federal law exempts it from state registration. States can still require a notice filing and a fee, but they can’t make you register the offering.
Individuals qualify if they meet any one of these tests:
Entities are tested on their own:
The dollar thresholds have not been raised since the 1980s, apart from excluding the primary residence. Congress has considered bills to widen the definition, but as of this writing the tests above are the law.
Anyone who doesn’t meet one of the tests above. That includes most friends and family, early employees who aren’t officers, and entities that don’t qualify on their own (for example, a family trust with $2 million in assets).
Under Rule 506(b), you can include up to 35 non-accredited investors in an offering, but only if:
Rule 502(b) requires you to give every non-accredited investor, before the sale, a disclosure document similar to a Regulation A offering circular. That includes financial statements, which may need to be reviewed or audited depending on the size of the raise. You also have to give them any information you give your accredited investors, and a chance to ask questions.
It isn’t IPO-level disclosure, but it is a real project with accountant fees and weeks of work. For a $25,000 check, it almost never makes sense. Westaway’s advice is to keep your round accredited-only.
Key takeaways
Rule 504 of Regulation D is the other option. It lets a company raise up to $10 million in any 12-month period from investors who don’t have to be accredited, without the Rule 502(b) disclosure package. It isn’t available to SEC reporting companies, investment funds, blank-check companies or companies with “bad actor” disqualifications, and the anti-fraud rules still apply.
The catch is state law. Rule 504 doesn’t override state securities laws, so you would have to register the offering, or find a state exemption, in every state where an investor lives. For a round with investors in several states, that is usually more work than the disclosure it was meant to avoid. It’s also why most startup rounds rely on Rule 506 instead.
| Rule 506(b) | Rule 506(c) | |
|---|---|---|
| Public advertising | Not allowed | Allowed |
| Non-accredited investors | Up to 35, sophisticated, with disclosure | None |
| Proving accredited status | Investor self-certifies (questionnaire) | You must take reasonable steps to verify |
| Typical use | Most seed rounds | Rounds raised by public pitching (demo days, social media, platforms) |
Verifying under 506(c) used to mean collecting tax returns or a letter from the investor’s CPA or attorney. Since March 2025, SEC staff guidance has also let a company rely on a high minimum investment, generally $200,000 for individuals and $1 million for entities, together with the investor’s written statements that they are accredited and that the minimum investment isn’t financed by a third party for the specific purpose of making it. That makes 506(c) more practical for rounds with large checks.
It’s a short form in which each investor states which accredited test they meet. Under 506(b), it documents your reasonable belief that the investor is accredited. On its own, it is usually not enough verification for 506(c). Never help an investor complete a questionnaire they don’t actually qualify for. The exemption for your whole round depends on it.
Whichever exemption you use, the anti-fraud rules still apply. Anything you tell investors, in a deck, an email or a call, must be accurate and can’t leave out something that makes it misleading.
Regulation Crowdfunding (Reg CF) lets anyone invest, including non-accredited investors:
Reg CF works well for consumer brands with a loyal community. It’s more paperwork than a SAFE round, so choose it on purpose and not as a workaround for one friend’s check.
You have three honest options:
See What Do I Tell My Friends and Family Interested in Investing in My Startup?
Depending on the type of fundraise, you may need to file a Form D and state blue sky filings. See What Comes After Fundraising?
Go deeper: For a full walkthrough, see our Founder Guide to SAFEs and Founder Guide to Seed Funding.
