usually also offer the ability to structure a more focused and
dynamic transaction, because they attract a small number of
sophisticated investors. In addition, a private placement permits more rapid penetration into the
capital markets than would a public offering of securities requiring
registration with the SEC.
To find out whether a private placement is a sensible strategy for you, you must have a fundamental understanding of federal and state securities laws affecting private placements and be familiar with the basic procedural steps that must be taken before this capital-formation alternative is pursued, have a good sense of your list of targeted investors, and have a team of qualified legal and accounting professionals to assist in preparing the private placement offering documents, usually referred to as the private placement memorandum, or PPM.
The PPM is essentially an offering of your securities to family, friends, and angels and can be used as a capital formation strategy for the opening of a retail shop or restaurant or for a sophisticated technology or software company.
biggest difference is that instead of an arm’s-length negotiation with
one or a few investors, you’re now targeting enough investors that a
set of offering documents is required under federal and state laws
and the terms of the offering will be established by you in advance.
a) What is a Private Placement Memorandum?
A private placement memorandum (PPM) is a legal document that describes your company’s background, the risks to the investor, and the terms of the securities being sold. You’ll also have to determine the exact degree of disclosure that should be included in the document, and several factors affect the type and format of information that must be provided. It is critical to remember that a business plan is not a substitute for a Private Placement Memorandum (PPM) is not a substitute for a business plan.
b) What types of USA and International projects do we offer private placement financing for?
Alternative energy development projects, apartment buildings, office buildings,commercial, condominiums, construction/developments, raw land, acquisition and development, medical buildings, multi-family, mixed-use, retail centers, hospitality, golf courses, etc.
c). What are our private placement debt terms?
LOAN SIZE: $1M to $500M+
LOAN TERMS: up to 3 years
INTEREST: 8 - 20%
LOAN TO VALUE: up to 75% and higher in some instances
UNDERWRITING CRITERIA: the normal requirements from a collateral lender
CREDIT: single asset, bankruptcy remote entity
PREPAYMENT PENALTIES: typically none after 6 months of timely payments
DUE DILIGENCE FEE: it varies but our Lender or Lender/Investor underwriting group will outline it in a formal letter of interest
POINTS: 4 – 10
CLOSING: can range from 10 - 45 days or more
INTEREST RESERVE: required
d) How can you ensure a successful PPM Offering?
Be ready and have a hit list; you certainly don’t want to take the time and expense to prepare a PPM and not have any clue who to show it to when it’s completed. Prepare a list of targeted investors well in advance to make sure the offering is viable and to help your lawyers evaluate compliance issues.
Make sure the economic terms are attractive; remember that unlike a venture-capital deal, in which the business plan is presented and then a term sheet is negotiated, the PPM offering is not intended to be negotiated at all. Therefore, you must have a good sense of the attractiveness and fairness of the terms of the offering in advance of the distribution of the document.
Find some special benefits or rights for the investors; for early-stage companies, the only real appeal to investors is the opportunity to get in on the ground floor of what might be the next big thing. Your challenge is to find some special benefit or right to entice investors to invest in your company.
Do it right the first time; the saying that “you never get a second chance to make a first impression” applies to PPMs. Investors don’t want to see a lot of glitter or waste, but they will expect to see a well-written and properly formatted document without typographical errors or poor grammar. They’ll want exhibits and other information that really help them understand the business and the risks inherent in the offering.
Friend of a friend of a friend; one of the age-old questions with a PPM offering is, “To whom can we send the document, and how well do we have to know them?” Well, remember that the offering is supposed to be private, not public. The offerees should be people with whom you and your team have a “preexisting relationship.” It should not be sent to a blind list of the wealthiest people in your area you know, the sort published by a city magazine. Use your discretion and consult with counsel if in doubt.
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