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Startup Central

Executing Your Raise in Texas: 506(b) vs 506(c), Advertising Hygiene, Finders, Integration, and Real‑World Scenarios

Promise Legal Staff

• 4 min read
Executing Your Raise in Texas: 506(b) vs 506(c), Advertising Hygiene, Finders, Integration, and Real‑World Scenarios

Choose your lane first: 506(b) or 506(c)

If you can keep outreach private → 506(b)

  • No general solicitation. Keep to known, substantive relationships and one‑to‑one outreach.
  • Practically, limit purchasers to accredited investors for startup rounds.
  • Provide a coherent disclosure set (deck, memo/PPM if warranted, financials, risk factors).
  • If a Texas resident buys, file the Texas notice via EFD.

If you need to market publicly → 506(c)

  • General solicitation allowed (web/social/PR/events).
  • You must take reasonable steps to verify accreditation (third‑party letters from broker‑dealer/RIA/CPA/attorney or document review). Self‑certification alone is insufficient.
  • Maintain consistent, accurate messaging across your site, data room, and press.
  • File Texas notice after the first Texas sale.
Five‑year reuse window (506(c)): If an investor was verified as accredited within the past 5 years in a 506(c) offering and certifies they remain accredited, you may rely on that prior verification—document it.

What is “general solicitation”?

General solicitation includes:

  • Public posts (“We’re raising,” terms, target amounts), landing pages collecting interest, paid ads
  • Open demo days and conference pitches to the public
  • Mass emails to purchased lists

Rule 148 (demo days) may exclude some sponsor‑run events from being solicitation (e.g., universities, governments, nonprofits, angel groups, incubators/accelerators) if specific conditions are met. If you can’t clearly meet Rule 148, assume it’s general solicitation and operate under 506(c).

Website & social hygiene (practical rules)

Running 506(b):

  • Remove/avoid current offering terms and “we’re raising” language on public pages.
  • Gate investor materials (login‑only data room).
  • No lead‑gen ads to fill a private pipeline.
  • If you must present at broad events, avoid discussing a current raise.

Running 506(c):

  • It’s fine to be public, but anti‑fraud still applies—keep all claims accurate and consistent with your disclosure set.
  • Archive verification proofs contemporaneously.

Finders & broker‑dealer risk in Texas

High‑risk pattern: Paying transaction‑based compensation (percent of funds, success fees, per‑investor bounties) to unregistered people who introduce/solicit investors. Expect enforcement and rescission risk.

Issuer exemption (limits):

  • Your owners/officers/directors/employees are not dealers only if all are true:
    1. not hired to sell securities,
    2. selling activities are incidental to bona fide non‑securities duties, and
    3. compensation is based entirely on those non‑securities duties (no commissions/bonuses keyed to capital raised).

Safer paths:

  • Use a licensed broker‑dealer (with agents licensed in Texas).
  • For unlicensed advisors, limit to non‑solicitation services; pay hourly/flat fees not contingent on funds raised.
  • Equity for services: use time‑based vesting for bona fide services; avoid vesting triggers tied to introductions/dollars raised.

Intrastate & Reg CF (brief guides)

Texas intrastate (Rule 147/147A + state exemption):

  • Keep issuer, offers, and sales within Texas (strict).
  • Gate marketing to Texas and confirm residency.
  • One out‑of‑state sale or widely accessible web page can blow the exemption.
  • Confirm any Texas filing and fee details on TSSB; some steps may be through EFD.

Regulation Crowdfunding (Reg CF):

  • Conducted through a registered portal/broker‑dealer.
  • Use the portal’s Form C, Q&A, updates, and closing workflow.
  • Outside the portal, stick to tombstone‑style communications and link back to the portal.
  • Texas anti‑fraud still applies.

Integration & sequencing (Rule 152)

Risk: Closely timed offerings may be treated as one offering (“integration”), potentially breaking your exemption (e.g., public 506(c) activity tainting a nearby 506(b)).

Guardrails:

  • 30‑day safe harbor (Rule 152(b)(1)): Offerings separated by >30 days aren’t integrated, provided purchasers in any no‑solicitation offering weren’t solicited by general solicitation (or you had a pre‑existing, substantive relationship).
  • Principles‑based test: Even inside 30 days, keep documentation showing each offering complied independently.
  • Separate funnels: Distinct landing pages, decks, lists; public traffic goes only to your 506(c) channel.

Real‑world scenarios (how to execute)

1) Texas‑only friends‑and‑family (506(b))

  • Keep outreach private; use standardized subs + investor questionnaire.
  • Instruments: SAFEs or convertible notes (they’re securities).
  • After first sale: file Form D and Texas notice via EFD (verify fee).
  • Avoid celebratory fundraising posts until after closing.

2) Broadly advertised 506(c) with TX & CA investors

  • Align public messaging and verification (third‑party letters or docs).
  • File federal Form D; then Texas/California notices (EFD where available).
  • Keep verification records current; consider reuse window when applicable.

3) Texas intrastate seed

  • Confirm eligibility; gate marketing/residency.
  • Apply legends/resale restrictions per intrastate rules.
  • Confirm any Texas filings (check TSSB), including whether EFD is used.

4) Reg CF with Texas investors

  • Run everything in‑portal; keep off‑portal messaging compliant.
  • If running other offerings, harmonize disclosures and avoid integration risk.

Founder documents & devices (quick guidance)

  • PPM or disclosure‑lite?
    • All‑accredited/simple terms → disclosure‑lite may suffice.
    • Complexity, non‑accredited, or frontier risk → PPM recommended.
  • SAFEs/convertible notes: Treat as securities; disclose valuation cap/discount, interest (notes), maturity, conversion scenarios.
  • Keep a change log and update all pending investors when material terms change.

Related reads (link internally):

  • Convertible note caps and interest rates
  • Convertible note liquidation preferences
  • Series Seed Preferred Stock
  • How many shares to authorize
  • Crowdfunding for startups

References & Sources

Feedback & Corrections

See our Corrections Policy and email [email protected] with updates or suggestions.

Disclaimer

Informational only; not legal advice. Requirements change—verify current Texas rules/fees on the TSSB site and consult counsel for your situation.