What is a PPM?

What is a Private Placement Memorandum (PPM) Or Offering Document?

The PPM is an offering document that is an expanded form of the business plan that is given to investors. The basis for PPMs go back to the information often required in a full registration statement filed with the SEC. Depending upon the exemption used for the number and level of investors, time for funding, and amount of money raised, there can be differing requirements for what must be provided in the PPM. Even if the exemption doesn’t require some element to be disclosed to investors, it is often a best practice to simply cover all your bases in that document. That is not to say that there may not be a legitimate business reason for not disclosing something when you are not required to do so. For example, in some cases you need to provide a recent audited balance sheet. Many startups don’t have the money to pay auditors to come in and audit their books to obtain the balance sheet, so if there is no requirement to provide that audited balance sheet, it may be best for the company to avoid that additional expense.

The basic principle behind the PPM is to fully inform the investor about all aspects of the business, company, industry, management, prior financial performance, and future prospects, as well as providing certain risk factors involved with investing in a new company, often with no revenue to sustain it. The SEC and state regulators want to be sure that you disclose what is required and don’t over-hype your company. The biggest threat is the anti-fraud statutes. If you put something in the PPM that is materially misstating that facts, misleading, fail to include relevant facts, or an outright lie, you can end up facing serious civil and criminal penalties. As an officer or director, you have certain duties and you have to be sure that you have control over what is happening in the fund raising process.