What documents do you give an investor?

You must provide investor prospects with ‘all material information’ necessary to make an informed decision. It is up to you to decide what constitutes ‘all material information’.

Private Placement Offering Memorandum (PPM);

This document is given to the investor and should include your business plan as an addendum. The investor gets to keep the PPM whether they invest or not. Titling a document a Private Placement Memorandum does not make it a PPM, it’s the contents of the Offering document that makes it a PPM;

*Your Offering Documents should be 70 to 90 pages without including the business plan. See the Menu for a sample PPM front page.

Business Plan:

The business plan is not the same as the Offering document and should not be used as a replacement for the PPM. I recommend that you make your business plan an addendum to your Offering. This allows you to modify the business plan document without needing to give your changes to the offering document preparer, saving time and money when changes are required.

Subscription Agreement:

The investor signs this document and returns it to you with their investment check. It also acts as a receipt and proof that you gave the investor the Offering Documents. It identifies the number of shares/units the investor is purchasing and the price the investor pays for each share, unit, or bond.

Operating Agreement:

(if organized as an LLC): The investor signs the Operating Agreement and returns it to you with the Subscription Agreement and their check. If you have someone prepare this document, they will need to familiarize themselves with the required information, which could involve reading 60 to 90 pages of information in your PPM to identify and extract the information required in the Operating Agreement (assuming they know what information is needed to be extracted). You should inquire if the Offering Document preparer will include this in their documents. Check the cost with your attorney to prepare this document. It could add $2,000 or more in extra costs.

Accredited Investor Questionnaire:

This is the first document to give the initial prospective investor contact. The investor’s answers to these questions will allow you to classify the investor as an “accredited or non-accredited investor.” No reason to spend time explaining your pitch to someone not qualified to invest their funds in your project if you are using Rule 506(c) exemption. (See menu Regulation D – Rule 506(b) and Rule 506(c)) A copy is included in this tutorial. See the Accredited Investor Form. Not meeting at least one of the qualifying criteria listed means the person is a non-accredited investor.

If using an outside consultant, have them deliver documents to you in MS Word. This will allow you to make timely, no-cost changes to the Offering documents. You must remember to convert the documents to PDF format and add a security password before making them available to prospective investors. Remember to keep the password where you can find it in the future.

NEXT: Finding Investors