Private Placement Memorandums
Venture Financing Funnel
If your company is seeking
capital from $50,000 to $10,000,000 from
investors - then you will definitely benefit from the structure of a
Regulation D Offering. From simple deals like seed capital for opening a coffee
shop to million dollar raises for high growth companies - these programs will
give you the legal, practical method of raising capital from investors
What is a Private Placement Memorandum (Reg D Offering)?
A private placement memorandum
(PPM) is the document that discloses everything the investor needs to know to
make an informed investment decision. This includes: the offering structure, the
share structure of the company, SEC disclosures about the shares being
purchased, company information, information on company operations, risks
involved with the investment, management information, use of proceeds,
information on certain transactions that could affect the investor, and investor
suitability data. The PPM also includes the subscription agreement which is the
actual "sales contract" for the shares of stock. This is the document that the
investor will sign and send in with their investment funds.
The PPM is very important
because it provides the investor with all of the prescribed data they will need
to make an investment decision and includes the actual documentation to effect
the investment transaction. PPM's are designed as a stand-alone document -
meaning that there need not be other information presented to the investor for
them to make an accurate investment decision. Many companies will attach their
business plans to the PPM as supporting documentation. This is an acceptable
practice so long as the information in the business plan properly corresponds
with the information in the PPM and that the investor is made aware that the
business plan alone does not constitute an offer to sell securities - only the
PPM can make that offer.
Only Using Business Plans
This is the route that most
businesses and entrepreneurs take when seeking capital for their company. What
are the disadvantages to using a
business plan as a funding vehicle?
Business plans are excellent
at presenting the company information and their concept - they are notoriously
ineffective at raising capital. Business plans do not provide any type of
framework or mechanism to facilitate the investment of capital. Investors want
to be provided with a predetermined, efficient, and concise investment
Looking for venture
capital? Ask a venture capitalist for your
Business Plan Tune Up.
Why You Still Need a Business Plan
The business plan is both your
road map and is an integrated part of the Reg D Offering. In short you need both
in order to be legal and to raise capital effectively.
By marketing a business plan,
you do not have access to sophisticated funding resources. Stockbrokers and
brokerages will not work with you because you have not structured an SEC
offering. The resources a company is then forced to utilize are infamous for
being highly ineffective. These include "finance brokers", "finance finders",
"finance consultants", etc. and most are looking for one thing in common - a
large front fee of some sort.
Most call it an "underwriting
fee" or a "retainer" - it is guaranteed wasted money, and worse, wasted time for
the subject company. It is not unusual for companies to look towards other
"alternative" funding methods like collateralizing the transaction with an
"insurance bond" or "financial guarantee".
These methods do not work and
typically have one thing in common - a front fee of some sort before you can
have access to this collateral instrument - which doesn't usually exist in the
first place. Even well established, sophisticated companies make the mistake of
using a business plan to solicit funding.
Regulation D Offerings have
been shown to be the most effective method a private company can utilize to
raise investor capital. The resources that are then available to the company are
all highly regulated by the SEC and are easily identified. Best of all - they
are effective. A Regulation D Offering also provides the framework for allowing
individual investors to invest in the company easily and efficiently. A
Regulation D Offering is a critical addition to a corporate
How Much Does this Cost?
The average commission offered
to registered brokers for selling the stock is 10% (which is added to the total
amount the company needs to equal the total offering amount - the commissions
are deducted from offering proceeds). You do not have to have a broker to sell
your securities - as a principal of the company you can sell the stock directly
to investors and bypass paying commissions to brokers.
Some states have a filing fee
to sell securities to investors residing in their state - these filing fees are
typically $50-$250.00 and are paid only if the company is going to raise capital
from investors in that state - these fees can also be deducted from offering
proceeds. There is no Federal filing fee.
Venture Planning Associates
can integrate your business plan into your Reg D Offering for fraction of what
you would normally pay someone to start from scratch.
Contact us today
quotation on a complete package for your fund raising requirements