If you’re a startup raising money from U.S. investors, whether through a SAFE, convertible
note, or even token sales, you should understand the basics of U.S. laws that will apply to your raise. Here’s the short version: almost everything you sell or “issue” to investors is considered a “security” under U.S. law. And unless you register the offering with the SEC (which is basically an IPO-level headache), you must qualify for an exemption. Otherwise, you are in violation of the law, subject to a range of penalties we’ll discuss below.
Why This Matters
Founders love moving fast. But raising money without following securities rules can get you
sued and scared off future investors.
If you issue securities without registration or an applicable exemption, investors can demand their money back (plus interest). The SEC can fine you or ban you from raising again. And even if regulators don’t show up, sloppy compliance can kill your next round or acquisition. Lawyers for VCs and acquirers will ask tough questions—and if your answers are not airtight, your deal might not close.
The Basics: Federal vs. State Law
The U.S. has two layers of securities regulation: federal (the SEC) and state (“blue sky” laws). Most federal exemptions override state registration, but you may still need to do notice filings and pay fees in every state where your investors reside.
Reg D: The Go-To Exemption for Most Startups
Regulation D is the lifeblood of U.S. startup fundraising and is what makes most venture rounds legal. All Reg D offerings require a Form D filing with the SEC within 15 days of the first sale in the round. There are two main Reg D flavors:
Rule 506(b): The Default Option
This is what most VC-backed startups use.
- Raise from unlimited accredited investors and up to 35 non-accredited investors.
- Accredited Investors are individuals with at least $1 million net worth (excluding their primary residence), annual income exceeding $200,000 in the last two years (or $300,000 with a spouse), or those who possess certain professional licenses. Entities with at least $5 million in assets also qualify as accredited investors.
- No public marketing of the fundraise, whether on social media, in person, or otherwise.
- Investors can self-certify their accredited status.
- If you include even one non-accredited investor, you’ll need to provide detailed disclosures (read: legal bills).
Rule 506(c): Raise Loudly and Legally
Want to promote your round publicly? This is your exemption. But: every investor must be accredited, and you need to verify it (not just take their word for it).
- Verification usually means checking tax returns, account balances, or getting a letter from an investor’s accountant.
However, per recent SEC guidance released in March 2025: If someone invests $200K+ (or
$1M+ if they’re an entity), and represents that they are not using debt to invest, this satisfies the obligation to verify investor accreditation—no third-party checks needed.
Rule 504: Reg D’s Forgotten Child
Rule 504 lets you raise up to $10 million, but it doesn’t override state laws. That means more filings, more complexity, and often no real benefit over 506(b). For this reason, Rule 504 is rarely used, and we almost never recommend this route for startups.
Reg CF: Online Capital from a Broad Investor Base
Regulation Crowdfunding (Reg CF) is how you legally raise from the general public—customers, fans, your mom.
- Raise up to $5 million/year through platforms like Republic, Wefunder, and StartEngine.
- Open to non-accredited investors, subject to investment limits based on income and net
worth. - Requires financial disclosures from the startup, including tax returns or reviewed/audited
statements (depending on raise size). - You’ll file a Form C, not a Form D, and states may still require notice filings.
Pro tip: Some founders pair a Reg CF with a traditional VC round to offer a slice to fans or customers without messing up their cap table. This is especially common among consumer-facing brands that want to include their community in their raise.
Reg A+: A Mini-IPO (Without the IPO Price Tag)
Reg A+ sits between private rounds and a full-blown IPO.
- Raise up to $75 million (Tier 2) or $20 million (Tier 1).
- Allows non-accredited investors and public promotion.
- Requires SEC qualification (acceptance) of a Form 1-A offering statement. Tier 2 also requires audited financials and ongoing financial reporting (similar to public companies, but lighter).
Section 4(a)(2): The OG Private Placement
This is the old-school exemption, used before Reg D existed. It’s vague and risky if you don’t know what you’re doing. Unlike Reg D, no federal preemption applies, so companies may need to register with state securities regulators, in addition to the notice filings done in connection with Reg D rounds. Companies should use this only in very narrow cases, like insider rounds or founder equity grants. Otherwise, stick with Reg D.
Reg S: Raising from Investors Outside the U.S.
If your investors are based outside the U.S., Reg S is your friend.
- No U.S. filings are required for Reg S raises, but you must comply with any applicable
foreign securities laws. - Only non-U.S. persons (as defined by the SEC) may participate in a Reg S offering. And there can be no directed selling efforts within the U.S., such as marketing to U.S. investors or advertising in U.S. media.
- However if done correctly, it is possible to conduct parallel raises, combining Reg S and Reg D for U.S. and non-U.S. investors.
Final Thoughts: Get it Right the First Time
Fundraising is hard enough. Don’t add legal landmines to the mix. Whether you’re closing a friends-and-family round, pitching U.S. VCs, or launching a Reg CF campaign, getting the legal setup right now will save you a world of pain later.
You only get one chance to make a good impression with investors. Make sure your raise is as
professional as your pitch deck.
This article is for informational purposes only and does not constitute legal advice. If you’re raising capital, talk to a lawyer who understands startup financing. No attorney-client relationship is formed by reading or relying on this content. The authors and publishers disclaim any liability for actions taken based on the information contained herein.