Private Placement Memorandum vs Business Plan (PPM vs Business Plan)

What’s the Difference between a Private Placement Memorandum vs Business Plan (PPM vs Business Plan)?

Savvy entrepreneurs understand the difference between a business plan and a private placement memorandum (PPM vs. business plan). At PPM we produce and write both types of document. We hear many questions about when it is right to have a private placement memorandum vs. business plan (PPM vs. business plan).

Why Consider a Private Placement Memorandum vs Business Plan?

To start, the purposes of the two documents differ. A business plan is a broad term for any type of document guiding the future activities of the business. There are conventional structures for business plans, and they can serve both strategic, management, and fundraising purposes. A private placement memorandum (PPM) is a document detailing a securities offering in accordance with relevant regulations and investor expectations.

Private Placement Memorandum vs Business Plan (PPM vs Business Plan)

Business plans are often structured to include:
  • Executive summary
  • Company description
  • Service or product description and benefits
  • Analysis of market, including competition, customers, suppliers
  • Operation and execution plan, including strategy and implementation to include schedules, budgets, and assignment of management responsibilities
  • Management team descriptions and backgrounds
  • Financial projections and planning including break even calculations, balance sheet, profit and loss (P&L) statement, etc.
When considering whether a private placement memorandum vs business plan is required, think about the stage your entrepreneurial venture is in. A business plan is a helpful planning document that can show you where your gaps are. A bit later, a professional, complete business plan with robust financial statements can be used for some types of fundraising, particularly taking on bank loans or debt. Business plans might also be helpful as a preliminary document to show potential investors, but it is not sufficient to actually raise capital and secure the funds.
In order to actually sell securities and raise capital, a private placement memorandum is required. A PPM outlines the structure and terms of the security offering, whether the securities are equity securities or debt securities. The private placement memorandum (PPM) also details the investment opportunity in accordance with regulatory requirements under applicable law. It is a ‘protectionary’ document, in that it protects issuers of securities from liability by detailing potential risks to the investment
Private Placement Memorandum (PPM, also known as an Offering Memorandum, or OM) include:
  • Structure of securities offering
  • Terms of sale of the securities, including fees
  • Capital (share) structure of the business
  • Description of the business
  • Historical financial statements and forward-looking projections for the business
  • Management team backgrounds and summary biographies
  • Risk factors for the business
  • Proposed use of proceeds raised
The private placement memorandum vs. business plan debate is one of timing and intention. If you are looking to get your entrepreneurial venture going and define the business, a business plan is an ideal document. If you are seeking to raise capital from private investors, a PPM is the required document. Under SEC rules, particularly Regulation D (Reg D) rule 504, rule 505, and rule 506, a private placement memorandum provides all necessary and required information to your investors (accredited investors and those non accredited investors, per the circumstance and regulations applying to your particular business).
Writing a PPM is a fundamental obligation of the company seeking to raise capital. SEC rules for accepting capital from investors are clear. A private placement memorandum (PPM) a) assures investors of the investment opportunity’s credibility and professionalism, demonstrating responsible compliance standards, and b) the PPM acts as a buffer between the individuals accepting investment capital and the investors, particularly if investment does not turn out well (e.g. if the company fails or loses the investors’ funds). Within the PPM, a section detailing risk factors should describe all the company’s real risks. The private placement memorandum vs business plan difference in part is that the PPM acts as adequate warning in case the company fails. With such a document investors may not be able to demand their money back (‘recission’).
Private placement memorandum vs business plan
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