A Private Placement Memorandum (PPM) is a complex legal document used by private companies when they are raising capital. A PPM is analogous to a prospectus for an IPO, but it contains less information and is less scrutinized by the SEC. A key purpose of a PPM is to present risks to potential investor. The benefit of having a PPM for a company is that it offers protection for issuers in the event that the investment goes bad by providing evidence that the investors was warned of the risks of the investment prior to his/her decision to invest. It is important to remember that unregistered shares are still subject the Securities and Exchange Commission's (SEC) Rule 10b-5, which implements the anti fraud provisions contained in section 10(b) of the securities and Exchange Act of 1934.
An attorney will be provided to review your companies PPM to make certain that it complies with federal and state securities regulations. However, costly legal professionals are not necessary to draft the initial document as many sections of these memorandums are fungible. We provide financial professionals that will tailor a PPM for your company and a lawyer who will review the document for legal compliance. The benefit of our approach is lower cost and only paying for what you need.
There are several ways in which companies have traditionally approach the creation of a PPM:
Lawyers: Many companies retain attorney to prepare PPM’s from scratch. Once the PPM is completed, the company is responsible for using the document to solicit investors. The fees incurred for the attorney’s time can range from $5,000 to $20,000 for a full private placement. An attorney may be a good option if the details of the company and/or offering are complex and the attorney has experience writing PPMs.
Investment Banks: Other company’s hire a full service financial provider n intermediary (eg investment bank) to help with their capital raise. Hiring an intermediary can be problematic as they generally require comprehensive contracts that require the company to pay fees regardless of the performance of the intermediary. Fee’s range from $5,000 to $10,000 per month and 5-10% of assets raised.
