We are specialists in the preparation and writing of Private Placement Memorandums.
We have been working with Regulation D (Reg D) Private Placement Memorandums (PPM) offerings since 1982 and prepare documents for companies from all over the world who are seeking financing in the U.S. This is not a software program, we counsel with you one-on-one and we write your Private Placement Memorandum document from scratch. We will work closely with you to assist you in determining the proper structure for your company; debt, equity or combinations, offer a review of your articles and by-laws to assure that you have the proper provisions for offering both common and preferred stock as well as sufficient officer/director liability protection clauses and provisions for a stock option program.
Our Private Placement Memorandum services include assistance in determining your corporate valuation, preparation of capitalization tables, determination of your use of proceeds and in deciding fair stock offering prices. Our services are based on the completeness of your business plan and company structure (C Corp or LLC). We offer no-cost, personal comments to assist you in developing a set of dynamic funding documents. Our prices commonly range from $3,000 to $8,000 for the document preparation, with first draft in 10 days. We are pleased to discuss your project in-depth before we begin and welcome your contact regarding questions or comments on your project and our Regulation D Private Placement Memorandum services.
What
is a Regulation D Private Placement Memorandum? A Regulation D Private Placement Memorandum (PPM), or offering, is a
document that discloses the primary information about a company for its
prospective investors. It is written in a very negative way to give investors
information about the company's operations, the risks the investor assumes, the
terms of the offering (for equity-price per share, number of shares offered and
outstanding, and for debt-note amounts, maturity, interest rates) and a great
deal of legal caveats. These, among other details, are not found in a business
plan and the use of a PPM offers a form of liability protection for
entrepreneurs.
What is a "security?' For equity offerings, a
security takes the form of stock, either common, preferred or units. In the case
of an LLC, they are called membership units. In a debt Private Placement offering, the security is
in the form of a note or debenture. Private offerings can be combinations of equity and
debt.
What type of companies need PPMs? All types, there are no
exceptions. From mom and pop retail to multi-million dollar super-sophisticated
high-tech projects and including all types of real estate deals. Size of the
project and type of industry make no difference. The important point is to
comply with the security rules and regulations and to present a concise, structured
professional disclosure document.
Do I really need a PPM offering document? The
primary reason for having a Private Placement Memorandum to go along with your business plan is that the
PPM offering document satisfies the legal issues on raising capital as well as provides you with a
sophisticated and professional way to present your project to prospective
investors. If you sell securities improperly, or do not make the proper
disclosures, you could face fines and rescission (give the money back), as well
as law suits from investors or regulatory bodies. By having a PPM, you are
complying with the state and federal rules and regulations for selling
securities (debt or equity) when raising capital. This includes deals from
$100,000 to multi-millions. When you use a Reg D memorandum, along with the proper clauses in
your articles of incorporation (or an LLC operating agreement), you limit the
liability exposure for the initial owners and directors of the
company.
Do I need a Private Placement Memorandum for a start-up? You may not have much in
assets or any revenues, however, this is the ideal time to have a Memorandum. A large
number of early stage companies use PPMs to raise their initial capital. Reg D
financial rules do not require you to have a lot of assets, there are no
minimums. Remember, Regulation D Private Placements are disclosure documents and as long as you disclose
your financial conditions, you are complying with the regulations. The investors
make the investment choice knowing all the facts about the project, including
financial conditions, prior to making their investment.
What kind of details go into a Private Placement Memorandum? Your business plan is made to sell the company. A PPM
is made to disclose the required information on the company, the deal, and the
management team to the prospective investor. There are defined requirements as
to the information required for disclosure in a PPM. They include such areas
as: Are you raising debt or equity? How much of the company are you selling?
If equity, common, preferred or stock units? What is the share structure? How
much of what type stock is authorized? Are you having a mini-max raise? How much
dilution? If a debt issue, note amount, maturity terms and annual rate of return
(interest), as well as is it convertible. The PPM addresses company and
management information, lots of risks involved in the investment, the use of
proceeds, discourse on certain transactions, conflicts of interest, as well as
other required disclosures. The main point to remember is that under Reg D, you
can structure a deal in anyway you wish, you just have to disclose the full
details.
Do I have to be a C Corp? Not necessarily. But in most cases for raising equity, it is the best.
S Corps are often limited to the number of investors they can have and can only issue one class of stock. Most
sophisticated private investors are not interested in the tax benefits that are
offered by S Corps or LLCs. And, they cause the company a great deal of extra
management time and expense in reporting. LLCs are good for one-off type of
deals where there is a known exit or limited number of investors. Again, the
company's tax reporting is a hassle. And, most sophisticated investors like to
have a vote in the business of the company. The investor just wants to make a big return on
their equity investment. C Corps are also the best way to
accommodate future additional rounds of financing.
What about multiple
investors? A Regulation D PPM sets the company up for receiving investment
funds from any number of investors. We have written PPM for deals with just
three investors and for deals with hundreds of subscribers. Since a PPM
establishes the deal structure - how much stock is being sold for what price - it
eliminates all negotiation for investment. The entrepreneur doesn't have to
argue with the investor over how much of the company their money is going to
buy. This is pre-determined in the deal structure.
Can I advertise the
sale of my security? Basically NO, not in the newspaper, TV, or radio.
However, there are some ways to get the word out that you are seeking
investment. This includes; brokerage firms, individual stockbrokers, fund
mangers, the Internet via web-based services that promote private investor
opportunities and many angel groups. The most successful entrepreneur's network.
It's hard work and takes time, but investors run in packs and once you get
involved with one investor, it is very common that effort will lead to many
others. See our Tips and Notes section of How to Find Private Equity for more
information. Finding
Private Equity
Will the company have to register with regulatory
authorities? Yes, but the requirements are simple and inexpensive. You must
file a Form D (9 pages) with the US Securities And Exchange Commission. This is
a compliance filing for information only and you do not have to submit your
business plan or a copy of your PPM. The filing is not subject to review or
approvals and there is no cost. Form D You also have to comply
with the Blue Sky laws of any state in which you intend to raise money. The best
way to determine any states requirements is to visit the website for the
Secretary of State or State Security Commission office. Many states simply
accept the Federal Form D filing.
How much of my company will I have
to give up? The general equity guidelines are that every round of financing
is worth 15% to 35% of a company. Now the however, it always depends on a lot of
factors, is this a first round or follow on raise, how much has been already
invested, how big is the total potential of the company, how strong is the
management team, how much and what type of competition, how many barriers to
entry, how fast will break-even be reached, how long till an exit is
contemplated, the list goes on. This point is basically a discussion on
valuation and valuation is more art than science. We assist all our clients in
working through this process and produce Capitalization Tables for your review
and discussion so that that you can make informed decisions on how much of your
company should you give up.
Do you have more questions? Email Jim
Arkebauer at arkebauer@venturea.com or call us
(303-758-8710) and we would be pleased to see if we can help address any special
circumstance or answer particular specific questions on your project and our Regulation D Private placement services.
