PRIVATE PLACEMENT MEMORANDUM
Why is a Regulation D securities offering critical to effectively raising capital from investors? Many companies seeking private capital make the mistake of using only their business plan as a funding vehicle. While business plans are an important facet of raising capital, they are not designed to properly raise capital from individual investors.
Properly raising any amount of debt or equity capital from investors goes well beyond just having a business plan in place - it requires a private securities offering.
We are frequently asked whether it is necessary to use a private placement memorandum (also referred to as a PPM or an offering memorandum) when selling securities to angel investors in a private placement. Once we tell them “yes, it's generally a good idea,” the next question that frequently is asked is “what does a PPM require?”
The answer to this question is somewhat more complicated and often dependent upon to whom the offering is being made, and in some cases the location of the prospective investors.
Before going into more explanation on that, we will explain why companies should use a PPM.
It is required by Law
In certain contexts, especially when offering securities to prospective investors who are not accredited, a PPM is required. In such situations, the contents of the PPM may be more or less dictated by the disclosure requirements of the applicable securities regulations.
Protection against securities fraud claims
Even when law does not mandate written disclosures, the statements of the issuer (oral or written) are still subject to the federal and state anti-fraud requirements. When offering securities to an investor, the issuer must not make any untrue statements of a material fact, or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading. (In other words, the issuer must not make any “half truth” statements - the issuer must fully disclose all relevant and material facts).
If a material misstatement is made, regardless of whether it is intentional, the investors may have a securities fraud claim against the issuer and possibly its officers and directors as well. In addition, the Securities and Exchange Commission can impose civil and criminal penalties, too. A well-prepared PPM avoids a securities fraud claim.
It establishes the record of what was communicated to the investors about the offering and the company.
A good, professional-looking PPM delivered to prospective investors is an effective “sales” document. It communicates to the prospective investor that the directors and officers of the issuer are serious about their business, that they know the company and the industry they are in, and that they are professional and know how to deliver a good product.
Contents of a PPM
Once a company chooses to use a PPM, the company next must decide what goes into it. In some contexts, because many securities law regulations are intended to protect those considered less sophisticated or less able to bear the risk of certain investments, law dictates the minimum contents of the PPM. If the private offering has at least one investor who is not accredited, it is likely that the issuer will have to make detailed disclosures. This typically drives up significantly the time to prepare the PPM and the associated legal costs.
For offerings where there is little or no formal mandatory disclosure requirement (such as when an offering in which is made to only a few investors from the same state and all the investors are accredited), the PPM should contain at least the information necessary to enable the prospective investor to make an informed decision as to whether to invest.
Thus, below is an example of what we suggest in many contexts to include in the PPM, although the actual contents of the PPM may vary depending upon the particular offering or circumstances of the company.
• Cautionary language: Includes several cautionary statements describing the risks of investing in unregistered securities generally and the offered securities in particular.
• Summary of Offering Terms: Is often in table format and is usually in the form of a term sheet (see article on term sheets).
• Description of the issuer: Describes the issuer, organizational structure, cap table, a brief history of the company, and context of the offering.
• Business plan: Provides information on the market opportunity, the company's value proposition, its products, marketing and sales plan, management, financials, proposed use of proceeds, etc. The brunt of an issuer's business plan is typically the centerpiece of the PPM.
• Risk factors: Includes those risk factors foreseeable by the issuer that may bear on the investor's investment, including those risks common to similar investments generally and those risks unique to the issuer and its securities. For example, risk factors can include challenges that the company may face in forthcoming clinical trials, or it may include some difficulties the company may face with cash flow while it expands its operations.
• Subscription procedures: Provides instructions on the mechanics for participating in the offering.
• Conflicts of interests: Consists of a summary of relevant or possible conflicts of interests of the issuer, its principals, its affiliates, or a combination of one of the foregoing. For example, the CEO of the issuer may have an outside an interest in another company that provides services to the issuer.
• Appendices: Contains supplemental information and documents that may be material to an investor's investment decision as to whether to invest. The appendices may include copies of the actual investment agreements (instead of just summaries in the PPM itself), detailed financial statements or projections, the organizational documents of the issuer, material agreements or licenses, etc.
In summary, it is virtually always a good idea to use a PPM when offering securities to angel investors. The investors to whom the offering is being made often drive the contents of the PPM and the costs associated with putting it together.
Accredited investor - A person or entity that meets certain requirements under the federal securities laws (specifically, Reg. D) for investment purposes. For example, a natural person is an accredited investor if he or she has a net worth (with spouse) that exceeds $1 million at the time of the purchase of securities, or has income either individually that exceeds $200,000 in each of the two most recent years or jointly with spouse that exceeds $300,000 for the two most recent years. There have been some rumblings in Washington that these figures soon may change.
Angel investor - A wealthy individual (accredited investor) who provides seed or early-stage financing from his or her own funds to entrepreneurs in return for equity. Angel investors sometimes provide industry knowledge and contacts and sometimes play a direct role on the board, but infrequently participate in management. Angels invest either as individuals or in groups.
Issuer - Refers to the company who issued or sold its securities.
As you may know, a Private Placement Memorandum or PPM is a legal document that outlines the terms of your investment deal including the securities that you are offering. Private placement transactions are exempt from registration under the Securities Act of 1933 in accordance with one or more statutory exemptions, as discussed in "Regulation D and Other Exemptions from Registration." Due to this exemption, PPM’s allow you to more easily access funding for your business from millions of individuals and institutions.
However, creating a PPM from scratch is a long, complicated. arduous very expensive process.
That’s why we created the Private Placement Memorandum program for small business entrepreneurs. With this Service, we can quickly and easily customize your PPM to reflect your own business, so you can spend less time in the planing stage and more time raising money from investors.
This service has already been used by businesses that have raised millions of dollars. And now, it can be used to raise money for your business!WE Prepare, Personalize Your Fund-Winning PPM Is Easier Than You ThinkPrivate Placement Memorandums can be long tediuos and daunting work. If you have never done one before. We have met lots of entrepreneurs who spent literally months on their PPM's and they still are not right.
YOU don’t have to go through all this time and expense and still not have the PPM you want and need. Why? Because we’ve will write a professional, successful Private Placement Memorandum for you! The result -- you will have a professional, customized PPM in no time flat. And, at a fraction of the time as if you tried to create the PPM yourself. And at a fraction of the cost as if you asked a consultant to create it for you.
That’s right, We’ve do all the hard work for you. With Our Private Placement Memorandum Service, before you know it, you’ll be passing out your PPM that raises money and/or helps you build a successful business. This is Exactly What You Get When You use our Private Placement Memorandum Service Specifically, Private Placement Memorandum includes the following sections:
Cover Page Summary of the Offering Summary of Subscription Procedures Risk Factors Executive Summary Business Plan Use of Proceeds Management Compensation Principal Interest Holders Capitalization Table Subscription Agreement Certificate of Accredited Investor Status
Winning Entrepreneurs Partner With Other Winners
In early 2009, Harvard Business School published a report. The report proved that entrepreneurs with a track record of success were much more likely to succeed than first-time entrepreneurs and those who have previously failed. So, how do you ensure success when you’re not yet a successful serial entrepreneur? Well, you partner with a company like ours. Our firm is comprised of successful serial entrepreneurs like myself and my co-founder.
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In fact, entrepreneurs like you have come to us, developed their PPMs, raised money, grown their businesses, and then sold their businesses for hundreds of thousands, millions, and even hundreds of millions of dollars. While you and I are still working hard on our businesses today, many of these clients now have nearly unlimited wealth, have opted for early retirement, and are living the lives of their dreams.
When you are guided by our Private Placement Memorandum Service, you get power behind you and your business. You get our best products, ideas and advice.You get proven success in your corner....the exact prescription that Harvard Business School gave to entrepreneurs who want to succeed.
Should I Write You A Check Or Send You a Bank Wire
Will your life be different next week? It could be incredibly different, as you could be ready and poised to skyrocket towards success in your business.. Here’s how...Imagine it’s a week from now, and you’re at a restaurant. You’re dressed nicely and you just ordered an appetizer. Across the table from you is someone who is also dressed nicely. And in front of them, placed squarely on their plate, is a crisp, professional document. Your private placement memorandum.The person in front of you flips through the pages one last time as you take a sip of your drink. Then they stop. They put the PPM down. They look you squarely in the eye. And then they ask, “Should I write you a check or send you a bank wire?” You’re sitting there excited. But you don’t want to seem too excited, like you weren’t expecting this moment. So, you coolly take another sip of your drink and place it down slowly. Then you say, excited but almost in disbelief about how quickly it happened for you-
“I’m happy to have you onboard. A check will be fine...”
And that’s it. Your funded... and you’re off and running. Your PPM was not only quick and easy, it helped win you the investment you were looking for.This is what the right PPM can and will do for you. Are you ready? Now is the time for you to take the right action.
How Much Is This Worth To You?
Remember, I’m going to write you our proven, PPM. The one from my arsenal that’s helped over 2,000 entrepreneurs like you raise over $1 Billion in funding.And which has allowed them to build numerous multi-million dollar empires. Not to mention the blood, sweat and tears we poured into creating this service over TEN years. So how much is raising capital and building a successful company worth to you?
We have over 100,000 Investors in our database looking for deals to fund! Our database includes over 6,000 institutional investors and over 100,000 successful entrepreneurs, business owners, and executives who can be the ideal investors in your company.
Important In order to make sure that your private placement memorandum complies with all of your State's regulations, an attorney in your State should review your PPM before you use it to solicit investors. It is our recommendation that you use our Private Placement Memorandum service to quickly, easily and inexpensively complete the your private placement memorandum. Subsequently, we suggest that you have a qualified attorney review the draft to ensure compliance and to make sure that you and your company are adequately protected. While your attorney could complete the entire PPM from scratch. By using our Ultimate Private Placement Memorandum service, you will dramatically reduce the overall time and cost to complete your PPM. How much would a securities Attorney charge to do a PPM, usually from $5000 to $50,000 maybe much more.