A Private Placement Memorandum (PPM) is a vehicle through which you can raise capital for a business by selling stock or security in that business. A PPM is a legal document you provide to prospective investors that describes the investment in hopes of raising money. It identifies the company selling the securities, outlines the terms of the offering (which is why PPMs are often called the "offering memorandum" or "offering document"), and discloses the risks of the investment.
Although it is designed to raise money, a PPM is not primarily a marketing piece. Instead, it should comprise concrete facts, candidly disclosing known risks to the company. It should fully disclose all aspects of the business, including its management, a description of the products or services offered, product and economic projection, financial statements, management biographies, planned use of the money raised through the offering, prior performance, and anything else a prospective investor might need to know to decide whether to invest in a business.
Nothing in the PPM should be false or even misleading. Rule 10b-5 of the Federal Securities Exchange Act of 1934 requires that any information provided to investors “must be true and may not omit any material facts necessary to prevent the statements made from being misleading.”
Most PPMs follow a similar structure:
- Summary of the offering
- Capitalization-related issues and information
- Risk Factors - both general and specific to the company
- Description of the company and the management
- Description of how the proceeds will be used (including compensation of founders from the proceeds)
- Description of securities (class, attributes, etc.)
- Instructions for investing in the offering
- Exhibits (investment contracts, financial statements, and organizational documents)
The first P in PPM is "private," meaning this information is not ordinarily available to the public. You give it only to those pre-screened investors that you think might have an interest in purchasing a part of your business.