Do I Need A PPM?

What’s a Private Placement Memorandum or PPM? Do You Need A PPM To Raise Money Or Start A Fund?

What is a PPM?

A PPM is a disclosure document used to raise money. PPM’s or “Private Placement Memorandums” can be used to disclose all the important risk factors, fees, investment criteria, and other details related to an investment. PPM’s can be used for private equity funds, real estate funds, hedge funds, crypto currency funds and venture capital. PPM’s are also often given to investors when start-ups or privately owned businesses are raising capital.

Private Placement Memorandums can be lengthy and are often drafted to conform with the SEC’s 1A disclosure standards. PPM’s are also used to comply with the anti-fraud and disclosure rules for private placements and offerings under Regulation D or Regulation CF. PPM’s are often a fund manager’s best resource for adequately disclosing all of the risks associated with an investment and protecting themselves against legal liability should an investment go bad. A properly crafted and customized PPM will serve as the primary disclosure document as required by federal securities law, state blue-sky laws and other related private investment rules.

Some of the language in a PPM will explain the investment, how the management will run the fund or business, as well as the risks associated with the investment. PPM’s should be specific about the risks related to the actual investment and avoid generic disclosures that sometimes have little to do with the actual fund or business. For example, a PPM for a real estate fund should talk about the risks associated with operating and investing in real estate, the local real estate market, risks related to obtaining financing for the project and other factors that are specifically related to their project. Alternatively, a PPM for a hedge fund won’t discuss the real estate market or mortgage interest rates, it would detail the risks associated with investing in whatever stocks or publicly traded equities the hedge fund is planning on buying.

Randall & Associates uses custom PPM documents to properly disclose the specific details related to our client’s funds and businesses. Our Private Placement Memorandums have been successfully used to raise money for all types of investments from tech companies to hedge funds.

Do I Need A PPM For My Fund or Business?

Technically speaking, raising money under Regulation D (or any other exemption to full registration with the SEC) you do not HAVE TO use a Private Placement Memorandum. There is no hard-fast securities law or SEC regulation that says you have to use a PPM to raise money. However, the anti-fraud provisions of federal securities law and the SEC rules do require that investors are provided with truthful and accurate information about all the risks associated with any investment as well as information related to the investment and fees.

If a PPM is not used, then adequate care should be used to make sure the specific risks, fees, investment criteria and other details related to the investment are disclosed in the Subscription Agreement or other similar legal document. In any event, most of the time we use a PPM to properly disclose all of the information related to our client’s fund or business and make sure to CYA for the future.

Randall & Associates offers a flat fee service for fundraising and fund formation that always includes a Private Placement Memorandum. Whether you are forming a hedge fund, private equity fund, real estate investment group or you’re raising money for your business, it’s almost always smart to spend the time to create a custom PPM for your investors.

Private Placement Memorandums & COVID-19

COVID-19 has created all kinds of economic chaos and should be addressed in any new Private Placement Memorandums or Reg A, Reg D, Reg CF Offering. Depending on the specifics of the investment and the types of investors you are soliciting, your PPM should specifically identify how COVID-19 could impact your business plan or investment thesis. This includes risk factors related to supply-chain, economic recession, worker availability and government mandated closures. Proper disclosures related to COVID-19 and how it relates to your fundraising efforts will be an important section of any future PPM’s or disclosures provided to investors.