How It Works
Companies who raise capital from private investors have the ability to use exemptions from registering their securities with the SEC. One of the exemptions is Regulation D of the Securities Act. Rules 504 and 506 provide the exemptions. One of the requirements is that certain disclosures are made to the investors. Those disclosures are provided in a Private Placement Memorandum, or “PPM.”
What is a PPM?
PPM’s are very detailed documents and can span over 70 pages in length. They provide a number of important disclosures, which the SEC has stipulated, must be disclosed to potential investors. It includes items such as; stock dilution, potential risks, state legal legends, the business plan, the management team, how to invest, and other important information investors need to know, so they can make informed decisions. Professionals use the acronym “PPM.”
Note: Our PPM’s have been used to raise billions of dollars, by attorneys, investment bankers, real estate funds, hedge funds, private equity funds, and DIY entrepreneurs.
How much capital can I raise?
If you’re using Rule 504 you can raise up to $10M. Rule 506(b) & (c) allow you to raise unlimited amounts of capital, you can raise $1k up to $5B+. Facebook’s first Reg D filing indicated Mark Zuckerberg raised roughly $5,000 using Rule 506(b), and later used the same rule to raise millions. Twitter, Tesla, and thousands of other companies have used Reg D to raise capital, and some of those companies are using Reg D right now. Check out this website to see who’s raising capital and how which Reg D rule they’re using.
Do I need an attorney?
Regulation D Offerings are complex and typically require an attorney who is trained and has experience in this realm of the securities business. We always recommend using an attorney for two reasons: 1) laws change and attorneys stay abreast of the changes; and, 2) Reg D is a federal regulation, however, state law also comes into play and attorneys are aware of the differences. The cost of hiring an attorney has come down in recent years, and there are many lawyers who charge a flat fee to develop a PPM. However, just because they charge a flat fee doesn’t necessarily mean you’re getting the best bang for your buck. Talk to a few attorneys and find someone you’re comfortable with.
Can I put my PPM online?
Rule 506(c) is the newer rule that allows companies to ‘solicit’ accredited investors. There are numerous platforms now available to market a private capital raise using Regulation D. If you’re a DIY entrepreneur, remember, a private capital raise is not the same as a PPM. The PPM is part of the private capital raise, and Regulation D is the exemption being used in that private capital raise.
* Paid Advertisement