How to Raise Money for Your Business: The Four Legal Paths and Which One Fits

A privately held company raising its first outside money almost always uses one of four SEC exemptions: Rule 506(b) to raise from people you already know, Rule 506(c) to advertise to accredited investors you don't know, Regulation Crowdfunding (Reg CF) to raise up to $5 million from anyone through a funding portal, or Regulation A+ to raise up to $75 million in an SEC-qualified offering. The right path depends on who will write the checks, how much you need, and how much time and cost you can absorb. The legal path is only half the raise: investors decide on whether the offering is investable, not just whether it is legal.

By Joel Arberman, founder of Prepared to Raise · 17 companies taken public, 30+ private placements prepared · Reviewed October 21, 2026

The short answer

Every sale of stock, a SAFE, a convertible note or a revenue share to an investor is a sale of a security, even when the investor is your brother-in-law. It has to be registered with the SEC or fit an exemption. For a company with a few hundred thousand to a few million dollars in revenue, four exemptions cover nearly every raise:

  • Rule 506(b): people you already know. No limit on the amount. Unlimited accredited investors, plus up to 35 non-accredited investors who are financially sophisticated (and who must receive substantial disclosure). No public advertising: you can only approach people with whom you have a pre-existing relationship.
  • Rule 506(c): accredited investors you don't know. No limit on the amount, and you may advertise publicly. Every investor must be accredited, and you must take reasonable steps to verify it.
  • Regulation Crowdfunding (Reg CF): anyone. Up to $5 million in a 12-month period from accredited and non-accredited investors, through an SEC-registered funding portal, with a Form C filing and reviewed or audited financial statements depending on the amount.
  • Regulation A+: a mini public offering. Up to $20 million (Tier 1) or $75 million (Tier 2) from anyone, after the SEC qualifies your offering statement on Form 1-A. Four to five months to qualification is a reasonable expectation for a typical company, and the fixed costs are far higher than the other three paths.

Whichever you choose, there is a filing. Under 506(b) and 506(c) you file a Form D with the SEC within 15 days of your first sale; it costs nothing to file. Almost every state where an investor lives also requires its own notice filing, usually with a fee that varies by state and offering size. Yes, this applies to a friends-and-family round. There is no friends-and-family exemption.

Which path fits you

Start with one question: who is going to write the checks?

  • People who already know and trust you, most of them accredited, and you need up to about $1 million: Rule 506(b). This is where nearly every first raise starts, and where most of them should.
  • Wealthy people you don't know yet, because your network is tapped out or too small, and you have traction to show: Rule 506(c), with advertising and investor verification.
  • Your customers, fans or community, many of them not accredited, writing many small checks, and you have a real audience to bring: Reg CF.
  • A large public raise of $5 million or more, with the budget and the months it takes: Reg A+. Considering Reg A+? Contact us for a custom quote.

Many companies use more than one path over time. Onfolio Holdings, a company we prepared for its public listing, had about $750,000 in revenue in 2020 and raised in three private placements before its IPO: $824,500 in common stock at $1.00 a share from 40 accredited investors, about $1.4 million in 12% Series A preferred stock at $25 a share from 62 accredited investors, and $2.0 million in common stock at $1.25 a share from 59 accredited investors. That is more than $4.2 million, as reported in its 2022 registration statement, with each common round priced above the last.

The half your lawyer doesn't do

A securities lawyer makes your raise legal: the exemption, the documents, the filings. That is necessary and it is not sufficient. Investors turn down plenty of good companies, not because they dislike the business, but because what they are shown is not organized and cohesive enough to give them confidence that management knows what it is doing. They are interested; the offering is not investable.

Making it investable means getting five things right before you ask anyone:

  1. The amount. Sized to a specific milestone and to the people you will ask. Raises most often fall short because the ask is too large for the network.
  2. The valuation and terms. Defensible in one sentence. A valuation set too high is the other common reason raises stall. Right-sizing it can mean more dilution, but more dilutive than what? Owning 100% of a company that never raises and never moves forward is the real comparison.
  3. The story and the risks. The upside, told consistently across the deck, the summary and the model, and an equally clear explanation of what could go wrong.
  4. The end of the tunnel. Investors weigh how long their money will be tied up and how they will eventually get a return: dividends, a preferred return, a buyback, a sale or a public listing. An offering that answers this plainly is far more attractive than one that doesn't.
  5. The conversation. Who to ask first, in what order, and model answers to the questions every investor asks.

When those five line up, the result can surprise the founder. GenFlat Holdings set out to raise $1 million for working capital and growth. It raised $3.3 million in common stock under Rule 506(b) from accredited investors in its founders' personal and professional network, because once the story, strategy, pitch, presentation and documents were aligned, the people the founders knew responded more strongly than anyone expected. That raise was prepared as part of GenFlat's plan to go public, which itself gave investors a clearer end of the tunnel.

What preparation cannot fix

In a raise from people you know, your track record and your standing with those people decide more than any document. If the people you plan to ask doubt you, because you haven't succeeded before or haven't executed, better materials won't change their answer. Find that out before you spend money preparing.

How long it takes

  • 506(b) or 506(c): about four to six weeks of preparation, then typically two to four months to close.
  • Reg CF: about six weeks to launch, including the accountant's review or audit, then 60 to 90 days live.
  • Reg A+: four to five months to SEC qualification for a typical company, then the selling period.

Related questions

Is there a friends-and-family exemption?

No. Money from friends and family is a securities sale like any other and usually relies on Rule 506(b). You still need proper documents, a Form D and state notice filings. More on this.

What is an accredited investor?

Broadly, a person with income above $200,000 ($300,000 with a spouse or partner) in each of the last two years and the expectation of the same this year, or a net worth above $1 million not counting their primary residence, or a holder of certain securities licenses (Series 7, 65 or 82). See the SEC's definition.

Can I post on LinkedIn that I'm raising money?

Not under Rule 506(b), which prohibits general solicitation. Under 506(c) you can, as long as every investor is a verified accredited investor. Under Reg CF, communications are tightly limited and must point to your funding-portal page.

Can I pay someone a percentage to find me investors?

Generally not, unless they are a registered broker-dealer. Paying transaction-based compensation to an unregistered finder can give investors the right to demand their money back.

Do I need a lawyer?

Yes, for the legal half. You also need someone who has sat on the investor's side of the table for the other half. What a lawyer does and doesn't do.

Where to start

A Readiness Assessment ($1,500, credited in full toward any package within 60 days) tells you which path fits, what investors will see, and what to fix first. If you are not ready, the report says so.

Prepared to Raise is a service of Meraki Partners, LLC. This article is general information, not legal, tax or investment advice, and not an offer to sell or a solicitation to buy any security. Meraki Partners is not a broker-dealer, funding portal, investment adviser or law firm. Figures are as of the review date above.