Common Problems with PPMs and Angel Investors

Startup businesses have several funding options available. One of the most popular forms of funding is to partner with an angel investor. An angel investor is an individual who provides capital for startup businesses in exchange for debt or equity. Some angel investors invest online via equity crowdfunding or become affiliated with angel networks or groups in order to pool their resources and investment capital.

Most angel investors have specific terms and conditions they look for when entrepreneurs submit their PPMs. However, most startups and entrepreneurs rarely meet the parameters that angel investors look for, for funding new ventures. In order to increase their chances for success in securing funding and partnering with an angel investor, entrepreneurs must change the terms in their PPMs.

Read on to learn more about the functionality and purpose of a PPM and what entrepreneurs need to do to make sure theirs is solid before presenting it to a potential angel investor.

What is a PPM?

A PPM is a Private Placement Memorandum that is a special business plan defined to raise capital, which is presented to an angel investor for review. A PPM addresses terms, valuation, company structure, business model, liquidation goals, and so on. Many entrepreneurs will work with a PPM specialist, whom is traditionally an attorney, which can be a costly approach.

The most common problems with a Private Placement Memorandum (PPM) is that the valuation is too high, the startup does not meet proper investing terms and conditions of the angel investor, or the goal is to sell common stock when it should involve preferred stock. During this stage, after the PPM is written and presented, it is often too complicated to renegotiate the terms for the PPM.

Tips for Entrepreneurs

So what are some tips for entrepreneurs in order to increase their chances of preparing a proper PPM that is within the expected terms and conditions of a PPM?

  • Don’t prepare PPMs to fund startup rounds of investment. It is expensive and may preclude sophisticated investors from funding your deal.
  • Pursue more sophisticated investors who will negotiate a fair deal with you and help you grow your company.
  • Only sell shares to accredited investors. In the long run, this usually works best for startup entrepreneurs.

All in all, experienced angel investors see more deals and proposals that come through that they are able to fund.

However, most angel investors will recommend to entrepreneurs that rather than trying to renegotiate with a particular investor or group of investors on the first round or version of a PPM, it is often easier to move along to another investor opportunity who may or may not accept a deal or proposal.

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Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC which includes InvestmentBank.com and Crowdfund.co. Nate works works with middle-market corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He is the chief evangelist of the company's growing digital investment banking platform. Reliance Worldwide Investments, LLC a member of FINRA and SIPC and registered with the SEC and MSRB. Nate resides in Seattle, Washington.
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