Private Placement Memorandum

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I'm seeking 2nd and 3rd opinions on the do's & don'ts, advice, etc regarding raising private capital via a Private Placement Memorandum.

And the difference between a 504 a 505 and a 506

Anyone know about such?

[jasaunders]

You will get different answers regarding PPM's depending on who you go to. If you go to a lawyer who you don't have a relationship with, or who might be looking out for their interests (money) and not yours, they will say you need a PPM 100% of the time. They will try to convince you that it is for your own benefit that every risk is outlined to the investor to protect against the investor making claims later. Even though if you ever read a PPM and believed it, no person in their right mind would ever invest.

If you talk to consultants, good lawyers, and angels, they will tell you in a lot of cases you don't need a PPM, at least not right from the start. Most angels won't require a PPM, and you should only provide it to them if they specifically ask for it. But most investors won't ask for or require a PPM.

[incredia]

PPM's are simply a c.y.a. document, which is why most experienced investors (angels or venture) won't want you to use one. They protect you from Fraud and Rico Lawsuits. Investors want to tie you "personally" to the company so they can assure their risk is better positioned, even though your "Corporation" is using the capital, and even though they may sit on the board with you.

Without a PPM your relationship becomes one sided very quickly. The investor will have you right where they want you, personally liable for a business transaction.

I'm not a lawyer, I run an online service called ppmfast.com which I started after going through this process and learning the hard way.

It is true that some capital infusions can be done without the use of a PPM, nevertheless you will need a quality contract. However, if you are raising money from individual investors and you don't want to sell more than 40% of your business - and you want to stay in control - I recommend a PPM approach. You can sell your deal using a business plan and if/when you get to the negotiating table, you can have your attorney deliver a PPM which includes a copy of your business plan.

This is a typical approach.