While there is some overlap, a PPM is not the same thing as a business plan.
PPMs are often structured to include:
- Summary of the Offering –?Offer a brief overview of the key aspects of the offering and make the offering easy to read and understand. If the investors like what they see they will be compelled to read further.
- Risk Factors –?Describe the risks specific to or associated with the investment that make the offering speculative or risky, that is, the possible disadvantages of investing in your business venture or project. Risk factors must be specific to your business. They spell out the reasons why your company may fail, and why the investor may lose all their investment. These include your company’s (i) lack of operating history; (ii) management experience; (iii) lack of profitable operations in recent periods; (iv) financial position; (v) business or proposed business; (vi) market competition; (vii) tax and legal issues affecting the particular investment; or (viii) lack of a market for your common equity securities or securities convertible into or exercisable for common equity securities.
- Description of Securities –??Describe the terms of the offering. These include (i) the investment size (the amount of money being raised); (ii) the number of securities offered; (iii) the offering price per security; (iv) valuation; (v) class of securities; (vi) the type of securities (e.g. common equity, preferred equity, option, warrant, debt, or convertible debt); (vii) ownership and control; (viii) dividend rights; (ix) conversion rights; (x) sinking fund provisions; (xi) redemption rights; (xii) voting rights; (xiii) interest on debt securities; (xiv) maturity of debt securities; (xv) priority of any lien securing the debt securities and priority of any lien securing the equity securities; (xvi) any restriction on the incurrence of additional debt or the issuance of additional equity securities; (xvii) any classification of the Board of Directors; (xviii) right to designate board members; (xix) liquidation preference; (xx) approval rights; (xxi) information rights; (xxii) pro-rata rights on future issuance of securities (such as right of first refusal); (xxiii) preemption rights; (xxiv) liability to further calls; (xxv) any restriction on transferability of the securities; and/or (xxvi) any restriction on the repurchase or redemption of?securities.
- Determination of offering price. describe the various factors considered in determining the?offering price, in light of the fact there is no public trading market for such securities.
- The ratio of earnings to fixed charges.?If you register debt securities, show a ratio of earnings to fixed charges. If you register preference equity securities, show the ratio of combined fixed charges and preference dividends to earnings. If you will use the proceeds from the sale of debt or preference securities to repay any of your outstanding debt or to retire other securities and the change in the ratio would be ten percent or greater, you must include a ratio showing the application of the proceeds, commonly referred to as the pro forma ratio.
- Dilution. Whether the offering will cause dilution of the security held or to be held by officers, directors, promoters and?affiliated?persons.
- Selling Security Holders. If any of the securities being offered for sale are for the account of security holders, name each such security holder, indicate the nature of any position, office, or other?material?relationship which the?selling security holder?has had with the?company, and state the?number?of securities of the class owned by such security holder prior to the offering, the?amount?to be offered for the security holder’s account, the?amount?and (if one percent or more) the percentage of the class to be owned by such security holder after completion of the offering.
- Plan of Distribution. If the securities are to be offered through a placement agent, such as underwriter, broker-dealer or finder, identify them and describe the relationship with the?company?and the terms of any agreement, including the amount?of compensation, sales commissions?and other expenses to be paid to them.
- Best Efforts. Say whether the securities are being sold on a conditional or contingency basis, such as the offering ends when a specific dollar amount is invested by a given date.
- Jurisdictions in Which Securities are to be Offered.
- Unregistered Securities Issued or Sold Within One Year.
- Intended Use of Proceeds.
- Security Ownership of Management and Certain Security Holders.
- Interests of Management and Others in Transactions.
- Compensation of Management, Key Personnel.
- Information about the Issuer. This includes (i) a detailed description of the business, proposed business, or plan of operation;?(ii) detailed description of?the products or services; (iii) the principal markets for the products or services; (iv) the sources and availability of raw materials; (v) sources of revenues; (vi)?marketing and?distribution methods and strategies;??(vii) the assets held by or to be acquired by the company, including any intellectual property (IP), other property and equipment, money or funding; (viii) the company’s history; (ix) prior performance financial information, including financial statements, balance sheets, cash flows and company expenses, (x) quantitative and qualitative disclosures about market risk; (xi) competition; (xii) Information about the directors; executive officers, and?management team; (xiii) compensation to be received by executives; (xiv) number of employees; (xv) corporate governance;?(xvi) litigation and pending legal proceedings; and (xvii) the effect of government regulations.
Business plans are often structured to include:
- Executive Summary. Some investors will ask to invest just from your summary.
- Company description. Such as mission statement, current legal and tax status, management’s aims for the company and what gives the company its competitive advantage.
- The product or service. what the business does for what type of clients and markets
- The market. Detailed market analysis and a sense of the competition.
- The Management Team.
- Business operations.
- Intended Use of Proceeds. The amount and use of finance required and exit opportunities
- SWOT. An overall “SWOT” (strengths, weaknesses, opportunities and threats) analysis that summarizes the key strengths of your business proposition and its weaknesses and the opportunities for your business in the marketplace and its competitive threats.
- Marketing and Distribution Plan.
- Financing Plan. The investment strategy, such as proposed sources of funding.
- Sales Projections. Financial projections and planning include break-even calculations, balance sheet, profit and loss (P&L) statement. The projections in your business plan must be realistic enough not only to give the company a reasonable chance of attaining them but to give investors a chance to make an informed decision about the business prospects.
- Revenue Waterfall and Investor Rate of Return (ROI).
The detailed “description of the securities” and the “risks factors” are perhaps the most important difference between the PPM and a business plan.
Unlike a business plan, the PPM focuses on the structure and terms of the deal, and the attendant risks of the investment, whether they be?equity securities or debt securities. The PPM should be a descriptive document. It should allow readers to reach their own conclusions regarding the merits of the deal.
On the other hand, a business plan is a persuasive document that goes into great depth regarding the financial projections, forward-looking statements, marketing, distribution and sales strategy and tactics of the business.
While the business plan may be helpful as a tool to pitch a business idea to potential investors and for setting out the business’s future objectives and strategies for achieving them, it is not an offering document. The business plan does not normally present sufficient details required for an adequate offer for investment, nor is it used to actually raise capital and secure the funds. This is normally reserved for the PPM (or a term sheet).
