Pharmaceutical Private Placement: Pharma Startup Sought Private Memorandum With Accredited Investors
Recently here at Private Placement (PPM) we worked with a client doing a capital raise in the pharmaceutical startup space.
This client had already done a first round of financing through friends and family investors but now needed a more substantial capital infusion to take the entrepreneurial startup to the next phase.
For a bigger fundraising round, our pharmaceutical client was looking for private placement capital from accredited investors. Accredited investors (also known as sophisticated investors) are often the signatories to private placement memorandums (PPM) and offering memorandums. Although accredited investor is defined differently in different regions, typically it refers to institutions or high net worth individuals with access to at least $1 million in liquid capital (or an equivalent level of solvency to back the investment). In addition to high net worth individuals, banks, hedge funds, venture capitalists, and private equity funds are considered accredited investors.
For our client, we informed them that a private placement raise would require a SEC Regulation D filing, including a private placement memorandum. We also referred them to a known database where they could find investors to raise money. We blogged previously about one database privately assists Qualified and Sophisticated Investors, and the two websites based on the different terms are http://www.sophisticatedinvestorregister.com and http://www.qualifiedinvestorregister.com. Our client already had a solid business plan, which they had developed during earlier rounds of capital raising and when seeking funds through bank loans.
The private placement memorandum for this pharmaceutical startup disclosed the capital structure and organization of the company, business plan and business of the company, along with investor sustainability standards. The PPM also included risk disclosures, including business and technological risk, given the high research and development (R&D) threshold in the pharma industry. The PPM went on to describe the management team and key bench scientists, their backgrounds and track records, and so on. Finally, the offering document (aka private placement memorandum, PPM, or offering memorandum) set out the terms of the investment (security offering), the summary of capital stock in the company, as well as tax and legal information.