A private placement memorandum (PPM) is a document that outlines the terms of securities offered by a privately-owned company. When shares in a privately-held company are sold to investors, this is known as a “private placement.”
How is a PPM different from a business plan?
A private placement memorandum is actually similar to a business plan in structure and content, but it differs from a business plan in one very important respect. A business plan is meant to convey the merits of a business opportunity, and is essentially a sales and marketing document. On the other hand, a key purpose of a PPM is to comply with various federal regulations governing the sale of securities.
How do I know if I need a PPM or a business plan?
A business plan may be appropriate for obtaining a loan, but it is not sufficient if an entrepreneur is raising capital from multiple angel investors.
How can I develop a PPM?
Here are the 3 major options when it comes to developing your private placement memorandum.
1) Use a PPM sample or template. This approach is clearly the least expensive, but the downside is that your PPM may not be fully adherent or professional – especially if you’re not accustomed to producing such documents.
Note: If you develop your memorandum yourself, it is always recommended that you have a qualified, competent securities attorney or law firm review your document prior to making an offering of private securities.
2) Hire a securities attorney or law firm. This approach will usually provide you with a fully adherent and professional PPM, but it is also often the most expensive approach (often costing several tens of thousands of dollars in legal fees).
3) Hire a PPM development firm (usually NOT a law firm, but a consulting firm, or an investment bank) that is experienced in developing such securities documents. This approach provides you with an adherent and professional document, but is less expensive than the services of a securities law firm.
Important Note: If you choose to have a non-law firm produce your PPM, you should still be sure that you have a qualified securities attorney review your document. However, by not having the law firm develop your PPM, you can often save thousands of dollars in fees.
Growthink is a consulting firm and investment bank specializing in private placement memorandum services. Since 1999, Growthink has advised more than 2,000 entrepreneurs and business owners on their business plans and PPMs. Growthink clients have raised more than billion in growth capital. To learn more about Growthink’s PPM services, click here: http://www.growthink.com/investment-banking/services/private-placement-memorandum or call 800-506-5728.