Yes, you can – but you will have to stop raising money for the 506(b) offering for at least 30 days before you can start raising money for the 506(c) offering. This is going to be a problem if you are raising money for a specific property that closes within 90 days, as you probably won’t have your Rule 506(b) offering documents until you are 30 days or more into a deal.
You will also incur additional legal fees for:
1. Converting your Rule 506(b) PPM to a Rule 506(c) and re-issuing the offering document
2. Creating a new Rule 506(c) subscription agreement
3. Filing a new Form D with the SEC
4. Doing new blue sky filings for your Rule 506(c) offering
Additionally, you could incur double blue sky filing fees of $1k-$5k, as you will have to do blue sky filings for your Rule 506(b) offering and then you will have to start over with blue sky notice filings for your investors in the Rule 506(c) offering; even if you previously filed blue sky notices in the same states for your 506(b) offering, as each SEC Form D filing requires its own blue sky (state) filings. Blue sky filing costs range from $150-$1,200/state.
Bottom line, you should anticipate total conversion costs of $6,000-$10,000.
The real issue here is that you shouldn’t ever have to do this if you have created a written Investor Marketing Plan and have developed pre-existing substantive relationships with a sufficient number of investors, all of whom can invest in your Rule 506(b) offering without advertising.
Further, there is far less likelihood of success that you will actually be able to raise the money through advertising, as you will have to explain to the people who don’t know you that your offering started out as a Rule 506(b) offering that includes non-accredited investors; and that because you were unable to complete the raise, you converted it to a Rule 506(c) offering so you can now advertise. It doesn’t tell a compelling story.
— Mola Bosland
If you want to know how to create an Investor Marketing Plan, check out our products page at InvestorMarketingMaterials.com, where you can buy an Investor Marketing Plan template for $250; or better yet, check out our Pre-Syndication Retainer for $1,200, which gives you up to 2 hours of one-on-one consultation with a securities attorney, an Investor Marketing Plan template, an Investor Relations Blueprint, and invitations to our weekly Clients-Only Masterminds, where you can learn from other clients and us about how to create a robust database of pre-vetted investors sufficient to fund all of your Rule 506(b) offerings.
