Private Placement Memorandums
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)?
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?
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
venture capital? Ask a venture capitalist for your
Business Plan Tune Up.
Why You Still Need a Business Plan
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".
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.
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?
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.
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