The goal of any Private Placement Memorandum is to fully disclose any and all information to potential investors. In many cases the PPM is a way to get all the skeletons out of the closet, especially if a company is being offered for complete sale. Any and all information, past, present and future is fair game. Here is a helpful list to get you started on drafting your own PPM.
- All contact information for the issuer including name, address, website URL and phone number.
- A detailed description of the securities being offered, including the price.
- The amount of securities being offered, including mins and maxes, if applicable.
- Cost of distribution and a plan to distribute.
- A full description and identification of the advisors, officers and directors of the issuer.
- The problem/solution scenario in which the business attempts to solve.
- A complete description of the issuing company’s business, services, products and business model. The description should include thorough descriptions of the technology, tacit knowledge or plan for the proposed business and how the plan fits into the problem/solution scenario described above. Where possible, the issuer should avoid being explicit on describing trade secrets.
- A complete discussion of the market for the company’s product or service, including competitive factors which could affect the company’s performance.
- A full description of the risk factors involved in the offering. If it is a sell-side engagement of a profitable company, the risk factors will include mostly known market risks included in the previous bullet above. If the company is issuing securities for a newly formed organization, the risk discussed should include information as to why the company may have no profits, assessment of the technology or services, risk discussions of competition and descriptions of competing technologies and firms, discussions on lack of liquidity, warnings of possible insolvency and/or bankruptcy and specific warnings indicating the investor may lose his/her entire investment.
- The most recent balance sheet, income statement and statement of cash flows, if available. In the ideal situation, it is best the financial statements be prepared by an outside accountant.
- Recent P&L statements and cash flow statement prepared without an audit.
- Projections, including proforma P&L of expected revenues and expenses based on realistic business assumptions.
- In the case of existing profitable businesses, full expert business valuation & appraisal.
- Full description which includes how the offering price was determined.
- Full description of the use of proceeds to be delivered and received to the company by the offering.
- A basic statement indicating that the SEC & any specific state securities commission has approved or disapproved the offering or passed on the basis of the accuracy and adequacy of the prospectus disclosures.
- A detailed description and explanation of the issuing company’s capitalization structure and calculation of dilution by investors.
- A description of any previous offerings, stock issues and stock options, including employee stock options.
- Restrictions description on the resale of the company’s securities including a statement indicating that no market now exists or may ever exist for the offered securities.
- Legend description to be placed on the issuer’s securities.
- A full disclosure of the share’s held by management, the compensation of management and the contracts and agreements held by any and all managers.
- A disclosure of any and all contracts with others, including any commitments, licenses and agreements with any third parties.
- Include any exhibits such as tax options, founding agreements, and Articles of Incorporation.
- Include any legal obligations, including legal battles, lawsuits and liens against the company.
- An offer to give any potential investors or acquirers a tour of the facilities, meetings with management or any other access to needed information to answer all questions in the due diligence process.
If you are not legally authorized to offer securities or need help drafting your own PPM, we can help.
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC, a middle-marketing M&A and capital advisory firm. Nate works with corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He holds Series 79, 82 & 63 FINRA licenses and has facilitated numerous successful engagements across various verticals. Four Points Capital Partners, LLC a member of FINRA and SIPC. Nate resides in Seattle, Washington. Check the background of this Broker-Dealer and its registered investment professionals on FINRA's BrokerCheck
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