Venture Financing:

Private Placements

Private Placement Memorandum

The Document that Discloses Everything the Investor Needs to Know


By Venture Planning Associates. Used by permission.

Private Placement Memorandums

Venture Financing Funnel

If your company is seeking capital from $50,000 to $10,000,000 from individual 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?

Venture Financing: Key Documents

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 framework.

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.

Buyer Beware!

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 business plan.


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 for a quotation on a complete package for your fund raising requirements