Hedge funds normally write a private placement memorandum (PPM) prior to raising capital. It is standard in the hedge fund industry that a PPM be used for investment purposes. Both onshore hedge funds, and offshore hedge funds develop private placement offerings. We have been writing hedge fund PPMs for many years and our team can write your PPM in a timely and efficient manner. Please contact us anytime.
Private Placement Memorandum Definition
A private placement memorandum offering is similar to a prospectus in that the document encompasses the terms of what a company is offering to an investor for their capital. The private placement memorandum discloses a portion of the company’s internal workings, from the market to the management team and risk factors, all the way to the tax implications for investors, both in the US and abroad. Public offering disclosure documents consists of a prospectus as the main document used to raise money, while a private placement offering uses a PPM for funding. The most widely used disclosure document worldwide is the private placement memorandum, which many refer to as an ‘offering memorandum’.
Private Placement Memorandum Variations
PPMs come in all shapes and sizes. Depending on whether a company is selling equity shares (stock) or debt securities like bonds or notes, the private placement memorandum will read differently.
- Equity: Equity offerings are common for startup and later stage companies. In an equity deal a company will sell an ownership stake in the business, usually in the form of issuing shares to investors. That is mainly true for corporations like S and C Corps. Limited Liability Companies – LLC, sell ownership in the form of Units, while LP or Limited Partnership sell Limited Partnership Interests. All are a form of ownership, albeit with varying terms and rights.
- Debt: When a company issues bonds or notes, also referred to a debt securities, they are essentially selling a promise. The company ‘promises’ to pay back the investor with an interest payment at certain point in time called a maturity date. Some companies offer ‘sweeteners’ when issuing debt such as offering convertible securities like convertible bonds and notes. At maturity or at a certain fixed point in time, holders of convertible debt can convert their debt to equity.
- Regulations: While conducting a private placement offering it is important to comply with securities laws and regulations. Such rules will vary from state to state, and from country to country. Regulation D, Regulation S, Rule 144A and many others (including such sub categories as Reg D 504, Reg D 505 and Reg D 506, 506b and 506c offerings) must be considered before writing and developing a private placement memorandum. There is also Regulation A (Reg A). A popular rule in the equity and debt private placement sphere is Regulation S (Reg S) and Rule 144A.
Our team is well versed in the many rules and regulation guiding the sale of private securities. We can ensure you offering is written for a strategic based offering.
Private Placement Memorandum Table of Contents
Each private placement memorandum will vary from the type of offering to the industry one operates in. Here are some of the main components of the table of contents of a private placement memorandum PPM.
- Executive Summary: The executive summary explains your business and how much you are raising.
- Jurisdictional Legends: The jurisdictional legend is a section in the PPM that states the rules of each state when selling securities, as well, if pertinent, for each separate country as well.
- Terms of the Offering: The terms of the offering section states what the company is offering in terms of stock or bonds (securities) in return for the investment capital.
- Investor Suitability: The investor suitability area of the PPM details the type of investor that is allowed to put in capital. Not all investors will be allowed to invest in every single type of business. The most popular investors are accredited investors.
- Risk Factors: The risk factor area of a private placement memorandum is where the issuing company will list the threats to its business. The risk factors should be detailed and real risks should not be omitted.
- Management Team: Each PPM has a section with the directors or management team’s biographies.
- Use of Proceeds: In the use of proceeds area the PPM will show where the funds being raised will be spent.
- Tax Implications: Each private placement document should have a tax area. The tax implication area is important for investors as they must know their tax liability before investors. This is true for domestic and foreign investors.
- Subscription Agreement: No PPM is complete without the subscription agreement. The subscription agreement is the contract between the issue and the investor.
- Exhibits: Many PPMs will include exhibits, which consists of ancillary information about the company or documents.
Writing a private placement memorandum for investment purposes is always recommended. Any issuer must comply with rules and regulations when raising capital, no matter the country or state. Securities law vary from local to federal to international agencies, and a company does not want to be in violation of securities. When writing a PPM – and for investors reading the document – explicating the securities laws of the offering is vital. For example, it is important to detail the risk of the company. While many issuers feel that listing the risk of the business is counterproductive, it is imperative that the risks are explained. Sophisticated investors are well aware of the language of the private placement memorandum. Including the risks in detail can help add protection to the issuer in case of investor grievances down the road.
Business Plan Information
Typically for a start up, an investor will first see a business plan and then require the writing of a private placement memorandum. In some cases, a company will literally paste their business plan within the private placement memorandum. If one does put the business plan within the PPM it is normally placed in an Exhibit (see above). It is not a requirement to include the business plan within the PPM, although it is good business practice to include some of the vital information of the business plan in the PPM.
Our team at Prospectus LLC are experts in both business plan and private placement memorandum writing. We specialize in research, rules and strategy.
If you company is seeking to raise private placement capital and needs documents such as the PPM or business plan (or any other document) feel free to contact us anytime.
- Prospectus Writing
- IPO Stock Exchange Listing
- Bond Offerings
- Feasibility Study
- 144A Reg S Offerings
- Hedge Funds and Mutual Funds
- Offering Memorandum
- Private Placement Memorandum
- Offering Circular
- Explanatory Memorandum
- Information Memorandum
- Fund Setup Formation
- Securities Identifiers
- Registration and Filing
- Legal Work
- Escrow Services