The Elements of a Private Placement Memo (“PPM) for a Regulation D Offering

What is a PPM?  

A private placement memo (“PPM”) is the document that is given out to investors when companies (or “issuers”) are raising capital through a private placement offering or Regulation D offering. It is the equivalent of a prospectus that an issuer would file with the S.E.C. if the company was “going public” through an initial public offering or IPO. This document is not required to be filed with the Securities and Exchange Commission (“S.E.C.”) or given to investors. However, it is highly recommended to be given to be prepared to be given to be all investors and material information truthfully and fully disclosed.

Why are PPMs so important?

Because these documents are filed with the S.E.C., sometimes with a state agency over securities and distributed to potential investors, it’s important that the PPM be accurate and free of misrepresentations about the offering. Being honest and disclosing material information about the company, financials and the offering will prevent investor lawsuits in the future and from running afoul of any S.E.C. rules and regulations, as well as any state “blue sky” laws that may apply.

Aside from the legal compliance and consequences of the PPM, this is the document that investors will consider THE document of the issuing company, giving details about the company and its plans for use of the funds raised. The document has to be both persuasive and honest, detailed yet somewhat pithy, and optimistic yet detail risks. Your management team, including and especially your attorney, will help you perfect this document before filing it with the S.E.C. or sharing it with investors.

Elements of a PPM: What’s typically included.

1- Cover sheet. Usually this just tells that this is a private placement memorandum and the name of the company or issuer.

2- Overview. This details the number of shares the issuer will be offering, the minimum and maximum amount and the type of stock being issued, usually preferred stock. This is usually followed by some legal language detailing that investments are speculative and not guaranteed and that these shares have not been registered with the S.E.C. or a state agency. There is a detailed bar with the number of shares offered, price per share, commissions and proceeds to the company; each of these items will have important footnotes.

3- More disclaimers. This legal language tells that this is a private placement and limited to the type and amount of people allowed under whatever regulation the issuer is relying upon for the offering. Additionally it states the confidential nature of the information in the PPM and the restrictions of the securities being sold. (Let your attorney worry about this language.)

4- Table of Contents. Just like a business plan, the PPM has a table of contents, most of which focus on the details of the particular offering (versus the company and plan as in a business plan). [Here is  a preliminary example] Typical sections include:

  • Summary
  • Risk Factors
  • Use of Proceeds
  • Capitalization
  • Dilution
  • Selected Financial Data
  • Management’s Discussion & Analysis of Financial Condition & Results of Operation
  • Business
  • Management
  • Certain Transactions
  • Principal Stockholders
  • Description of Securities
  • Terms of the Offering
  • Legal Matters
  • Experts
  • Additional Information

Things to Remember About a PPM

This is a document with LEGAL consequences. Your whole management team should collaborate to make sure you have the BEST product when you submit this to the S.E.C. and to investors. Your attorney will be a vital part of this process and you should have one on your team in the very beginning as deadlines come with raising capital. There can be dire consequences if you miss the legal compliance of raising private equity.

Be honest. Be thorough. Share with potential investors FREELY and EQUALLY. When in doubt, disclose. Don’t mislead.

NOTE: I will be discussing this subject in detail during my “Power Raisers” weekly conference call this Monday (Aug. 31st) at 11 am EST. Visit the News & Events section of my website for more information.

Power Raisers


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Filed under business, corporate law, entrepreneur, legal compliance, securities

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