4 Ways to Add Efficiency to the PPM Drafting Process

I’m finishing a private placement for a client this month, and all told, it was a really smooth process. For those unfamiliar, private placements are used bybusiness owners to raise capital in non-public markets. A private placement memorandum, or PPM, is the document used to describe the security that relates to the investment – complete with a description of the company, the offering itself, and the various risks associated with the investment.

Over the last couple of months, my client was well prepared for the capital raise, having put a lot of time into his business well before drafting the PPM.  I wish every client were as prepared.  Many are not.  Have no fear though, here are 4 ways to add efficiency to the PPM drafting process based on my experience.  And if you’re not working on a fixed fee arrangement with your lawyer – these 4 ideas will undoubtedly save you money.

1.  Be organized.

It always pays to be organized, no matter the project.  When drafting a PPM, an attorney will likely have a list of questions for the owner or principal at the outset, and follow-up questions thereafter.  An organized business owner can access information quicker, and ultimately pass it along quicker than his or her disorganized counterpart.  The quicker information can be shared, the quicker the PPM can be drafted and circulated to your investor pool.  It pays to know where your documentation is located.

2.  Know your company.

There are two parts to this bullet-point: the first is “know your company” and the second is “write it down, if you haven’t already.”

A start-up or established business owner should be able to define what their company does, and where they reasonably believe they are headed in the future.  If you’re unsure how your business would use new capital, then you’re probably not ready to spend the time and money to draft a PPM, or take on new capital or new investors.

Supposing you know who you are, what you do, how you do it and what you want to do with the money, writing down the who/what/how will make it easier on your attorney when conceptualizing the PPM.

The most common way to memorialize what you know of your company is through a business plan.  Some people love business plans, others hate them.  The upside of a business plan is the time that can be saved for the attorney drafting the PPM.

Your counsel can use various parts of a business plan – an executive summary, synopses, data points – to draft various sections of the PPM.  And perhaps most importantly, business plan information can help your attorney evaluate the appropriate risk factors that should be placed in the PPM.

3.  Allow your advisors to talk with one another.

If your business properly uses professional help (think lawyers and accountants) allow your advisors to talk with one another.  A trustworthy lawyer or accountant won’t use such conversations as mere billable events, but instead will, together, determine the best plan of action for your business and share information that belongs in your PPM documentation.  Shared communication between advisors yields higher quality results and keeps everyone on the same page.  If you don’t trust your lawyer or accountant to use their time (and your money) wisely, it’s time to get different professional help.

4.  Know your target investor pool.

Knowing your target investor pool will help your attorney understand which of the Federal securities exemptions are available for your offering.  In addition, if you know in advance that some of your investors are out of state, be sure to share that information with your lawyer as early as possible.  Each state has its own set of Blue Sky Laws (i.e. individual state securities laws), and you must follow the state securities laws of the individual investor.  Advise your attorney of your investor pool early, and it may save you from a hiccup or delay further along in the process.

In sum – be organized, know your company (and write it down), allow cross-communication between your advisors, and know your target investor pool as best you can.  These 4 principles will ease the drafting process, and get you ever closer to raising capital.  Heck, you might even save money on your legal bill and impress your lawyer at the same time.