Benefits of a Private Placement Memorandum

If you are a business looking to raise some cash, one option for you is to seek private investment capital.

This is also known as a private placement, and it usually involves money from investment or pension funds, banks, or insurance companies, though individual wealthy investors can also be involved. Family Offices, for example, are ultra-high net worth investors and serve as an excellent source for raising capital.

To seek private placement investment, many people hire a lawyer to draft offering documents and help present a basic business plan. The most key component is a private placement memorandum (PPM) which offers an in-depth look at your business and its operations. It is designed to offer full-disclosure to an investor before putting money into a company. This document is also referred to as an offering memorandum. 

In many ways, it serves the same function for private entities as a prospectus issued by public companies.

There are a number of crucial things outlined in a PPM, including.

• The nature of the business. What does the company do? How does it generate revenues?
• The terms of the investment. How much money is the company looking to raise? What’s in it for the investor?
• The potential risks of the investment.
• The management team and structure.

There are no strict rules about how a PPM must be formatted, but they often look very similar because of the information required. Lawyers charge upwards of $25,000 to create a basic Private Placement Memorandum including the following items:

1. Introduction or Executive Summary 
2. Disclaimers and other Legalese
3. Investor Suitability Subscription Procedures
4. Summary of Offering Terms
5. Business and Management Section
6. Financial Information
7. Use of the Investment
8. The Risks

Exorbitant legal fees can often be crippling to emerging startups who lack excess working capital. There are alternates to needing to pay such high fees for a private placement memorandum. Many fund managers consider utilizing professionally prepared templates. There are companies offering easily downloadable templates that can be modified to meet specific terms of an investment offering. This solution is often desirable not only for huge financial savings but also because they provide a plug-and-play solution in which the client takes control of the timeline vs falling prey to a busy law firm's schedule. Learn more about Private Placement Memorandum Templates.