subject: Private Placement Memorandum (ppm), What Is It? [print this page] If your company is seeking individual investors to provide capitalization from $50,000 to $10 million - then you can definitely take advantage of the Regulation D offering or the Private Placement Memorandum. From small transactions like seed capital to be used for starting up a coffee shop of Internet cafe to million dollar raises for additional capital of high growth companies - a PPM or Private Placement Memorandum can give the practical and legal method of raising capital from individual investors.
What is a Private Placement Memorandum (PPM)?
A PPM is a document that discloses all the information an investor needs to know to help him come up with an informed investment decision.
A PPM includes the company's share structure, the offering structure, the disclosures made by the Securities and Exchange Commission about the shares being bought or purchased, company operations, company information, possible investment risks, use of proceeds, management information, information on deals and transactions that can affect the investor's decision, and the investor's suitability data.
A PPM also includes the subscription agreement or the actual sales contract for all the shares of stocks. In short, the PPM is the document the investor needs to sign and send in together with the investment funds.
The Private Placement Memorandum is very important and crucial as it provides the potential investors with all the prescribed data needed to make a sound investment decision. It also includes the actual documentations that would take the investment transaction into effect.
PPMs are designed as a single and standalone document which means that no other information is needed by the investor to make an investment decision. However, some companies still attach their business plans to the Memorandum to serve as supporting documents.
This can be accepted as long as the information disclosed in the business plan corresponds properly with all the information included in the PPM, and that the potential investor is aware that the business plan attached to the PPM does not represent securities offer because only the PPM can make such offer.
Advantages of Using Private Placement Memorandum Rather than Business Plans
Business plans are the usual route most entrepreneurs and businesses take when seeking to raise capital from potential investors for their company. However, business plans are not an effective funding vehicle. They are excellent when the company information and concept is being presented; however, they are ineffective when raising capital.
This is because business plans do not give any type of mechanism or framework to facilitate the capital investment. Investors want to see an efficient, predetermined, and brief yet clear investment framework.
Why Do You Still Need a Good Business Plan?
Your business plan is actually your road map and it's an important part of the PPM offering. To say it simply, you need both PPM and business plan to be legal and to raise the capital you need effectively. However, you should remember that between the business plan and PPM, you have to focus more on making your PPM comprehensive and clear, in such a way that it can convince your investor to give you the capital you need.
