Can You Take Reservation Deposits Before Your Offering Opens?
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Usually no. Collecting money from interested people before the offering is open and the documents are delivered is risky: it can count as a sale of securities, it starts the clock for Form D and it puts investor money in your hands with no escrow protection. A safer way to build momentum is a waitlist or a non binding indication of interest, with money taken only after the documents are delivered and only into escrow.
Why do sponsors want deposits?
A deposit shows seriousness, filters out the curious and makes the raise feel real. It also feels like a way to lock in a friend before they change their mind. Those are fair goals, but a deposit is a poor way to reach them.
Why is it risky to take money early?
First, a sale of a security under Rule 506 requires that you fit the exemption, and a person who has paid money has arguably bought something. If the investor is not accredited or you have not delivered the disclosure required for 506(b), you may have made a sale that does not fit. Second, there is no escrow, so the money is exposed to the sponsor's creditors, mistakes and temptation. Third, Rule 10b-5 prohibits misleading statements when you take money (17 CFR 240.10b-5).
What does Rule 241 allow?
Rule 241 lets an issuer test the waters to gauge interest in an offering before deciding on an exemption (17 CFR 230.241). It is built for communications that do not result in a sale: you cannot take money or a binding commitment while you are testing. See testing the waters.
When does Form D start?
The Form D is due 15 days after the date of first sale, which the SEC treats as the date the first investor is irrevocably contractually committed (Form D instructions). A binding deposit can start that clock before you meant it to. See date of first sale.
What should you do instead?
Use a waitlist: names, email, a rough range of interest and a clear note that it is not a commitment. See building a waitlist before you have a deal and soft commitments versus signed subscriptions. When the deal is open and the documents are delivered, the investor signs the subscription and sends money to escrow.
What if someone insists on sending money now?
Say no kindly. Explain that investor money goes to escrow only once the offering is open, and offer to put them first in line. If money does arrive by mistake, return it promptly and keep a record. Do not use it, even briefly, for deal costs.
Our take
A waitlist gives you the proof of demand a deposit would, with none of the legal weight. You do not need money to know who is serious: you need honest follow up and a date.
Trade-offs and who this is not for
- A waitlist is less binding. That is also why it is safer.
- Not for sponsors who need earnest money in hand to win a contract. Use your own funds or a co-sponsor for that.
- Common mistake: calling it a deposit. The name does not change what it is.
- Not a substitute for counsel.
How DoorRaise fits in
DoorRaise helps sponsors raise equity for apartment buildings with 5+ units from friends and followers who already trust them, under Rule 506(b) or 506(c). We are software, legal document preparation, escrow coordination and verification services. We are not a law firm, broker-dealer, investment adviser, funding portal, bank or escrow agent, and we do not hold investor money: investors wire their money to escrow at Enterprise Bank & Trust, in the deal's name.
A private deal page lets people register interest before the raise opens. Wire instructions appear only once the deal's escrow is open, and investors sign before they wire. Flat fees, never a percentage of the raise (see pricing). Create your free sponsor page.
FAQ
Can I take a refundable deposit?
Even a refundable deposit can be seen as taking money for an unregistered sale. Use a waitlist and take money only into escrow once the offering is open.
Can I ask investors to fund my earnest money?
Not as a deposit on a future offering. If you want investors to fund earnest money, structure it as part of the offering with the documents and escrow in place.
Does a waitlist count as a sale?
No, if it is non binding and takes no money.
What if I already took deposits?
Stop, return the money, and talk to a securities lawyer about what to disclose.
Sources
- 17 CFR 230.241, generic solicitation of interest
- 17 CFR 230.503, Form D filing
- 17 CFR 240.10b-5
- SEC: Form D
This article is general information, not legal, tax or investment advice. Talk to a securities attorney before you market an offering. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.