How to Use the Two Most Popular PPM Documents
When it comes to selecting the right PPM, hedge fund startups have a variety of options. Two of the most popular types are an equity placement and a debt private placement. These two types of placements can have different consequences and rules for investors and hedge fund startups alike, so it’s key to understand their differences.
While making this decision, hedge fund startups need to assess which one is right for them. This determination will impact how securities are sold and invested, as well as the kind of return that can be seen over the years. Here are the top differences between an equity placement and debt private placement, and one similarity at the end.
Difference #1: They each have different ways to sell the investment.
With equity placements, investors have an ownership stake in the company from the selling of shares of stock. For debt private placements, securities like bonds or notes are sold. To put it more simply, equity means the value of shares while debt refers to a loan, hence bonds or notes instead of shares in the company.
Difference #2: They offer different benefits for the investor.
Since equity placements offer an ownership stake in the company, investors may receive units in the limited liability company or limited partnership. The hedge fund startup can also include preferred shares or preferred stock to attract more investors to this type of placement. With debt private placements, offerings can include the details of the securities being sold like the interest rate, maturity date and terms of the notes or bonds. This also potentially includes convertible bonds or convertible notes.
Difference #3: Equity and debt private placements help hedge funds avoid the pitfalls and obstacles of other public forms of funding.
Hedge fund startups can avoid the potential struggle of getting a bank loan with either of these placements. When deciding which one is best for the hedge fund startup, it’s important to understand how both of these private placements mean they can raise capital potentially at a faster, more meaningful rate than with conventional loans.
With these differences (and one common goal) in mind, hedge fund startups can pick the right placement for them. Whether they’re looking to provide an offering to investors whether it’s a stake in the company or a loan. Click here to learn more about the documents needed to successfully raise capital.