The private placement memorandum (PPM) is a document that companies may, and sometimes must, provide to potential investors that includes detailed financial and non-financial information material to an understanding of the issuer, its business and the securities being offered.
The Securities and Exchange Commission requires that a company provide a PPM to all non-accredited investors in any financing relying on Rule 505 or 506 of Regulation D. The information required to be included in the PPM is similar to the information required to be disclosed when a company goes public, and therefore takes significant time to prepare and requires careful review by the company’s lawyers and accountants. Among the non-financial information required is: a description of the company’s products and/or services, suppliers, target market and competition; a discussion of potential risks involved in the company’s business and any investment in the company; biographical information about the company’s management; and a summary of the company’s capitalization structure before and immediately following the financing.
Given the cost involved in preparing a PPM, why would a company ever choose to provide one if it was not required to do so? Because a well-prepared PPM helps protect the company from liability by providing a written record of information investors were given about the company and the risks of the investment. On the flip side, a poorly drafted PPM may serve as evidence of information the company failed to disclose to an investor, so it is imperative that legal counsel be carefully involved in the preparation of the document.
Finally, please note that using a PPM does not free a company from the other requirements of applicable federal and state securities laws or regulations, so it is important to consult an attorney to ensure you are in compliance.
Tags: Accredited Investors, Angel, family, Financing, friends, PPM, Private Financing, Regulation D, Rule 505, Rule 506, securities, Seed, VC
Tags: Accredited Investors, Angel, family, Financing, friends, PPM, Private Financing, Regulation D, Rule 505, Rule 506, securities, Seed, VC