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Implementing a Private Placement Offering before or after soliciting investors – which is more effective?

We have encountered many business owners and entrepreneurs over the years that decide to forgo the use of a private placement offering until such time as they have “interest” from investors.  Many are seeking to avoid the time and expense of preparing the offering until after they have secured interest from investors. In our opinion this is a critical and costly mistake that usually results in a failure to secure investor capital for the subject company.

In this post we will explore some of the problems that arise when a company seeks capital from individual investors, or even indications of interest, without a private placement offering in place.

Problem #1:  Lack of Concise Structure

Securing interest from investors requires concise, professionally developed transaction structure.  Simply using a business plan or executive summary with investors is not providing them with proposed structure that is suitable for evaluating a potential investment into your company.  Most business plans simply state an aggregate amount of capital being raised with no mention of the type of securities being offered, terms, minimum investment, investor rights and preferences, and numerous other pertinent variables.  You will find it nearly impossible to secure any interest from investors by using a business plan.  At most, an investor may express some nominal interest in the company’s vision and planned operations but will not have the capability to provide a true commitment for investment.

Problem #2:  Inability to Accept Investment

In order to accommodate the investment from an interested individual the Company will need to execute a proper private placement offering to sell the investor the equity or debt securities that will result from execution of the investment transaction.  It is far more effective to have this capability in place when you initially solicit the investor – rather than soliciting the investor and then putting the investor on hold while an offering is formulated (at which time they will have to revisit and re-evaluate the transaction again).  If an investor is interested in your company’s investment opportunity – you should have the capability to move forward and capitalize on that interest and execute processing their investment in a timely manner.  This is not possible outside of a properly prepared offering.

Problem #3:  Disclosure is Responsibility of the Company

It is the company’s responsibility to provide the investor with everything needed to properly evaluate the company’s operations, the investment transaction, terms of the investment, and the risks involved.  A business plan or executive summary does not provide for these requirements.  Thus, initial interaction with an investor outside of a structured offering does not accommodate the disclosure needed for proper vetting of the investment.  In turn, investors are typically unable to provide an indication of commitment to the investment opportunity.

Problem #4:  First Impressions Count

You never get a second chance to make a quality first impression with an investor. We ensure our clients provide an impressive first impression with investors because we develop Tier 1 grade Presentation Grade PPM documents that showcase the company’s vision, products, services, and the investment opportunity in an ultra-high specification prospectus package.

Providing an investor with a professionally prepared, accurate private placement offering tells the investor the following about your company:

  1. You are serious about raising capital properly
  2. You intend to comply with all rules and regulations in handling their investment into your company
  3. You are sophisticated and savvy to the requirements of soliciting investors and accepting their investment
  4. Using a private placement offering from the outset of interaction provides investors the positive perception that you will manage the company’s planned operations in the same manner as you are managing soliciting their investment into the company – with professionalism and in accordance with applicable regulations.
  5. You want to provide full disclosure to the investors about the company and risks so they may make an accurate decision regarding participation in the investment

Is it worthwhile to prepare a proper private placement offering and related prospectus materials prior to soliciting investors?  The answer to that question is simple:  how serious are you regarding raising capital for your company properly and effectively?

Call us today to find out how we can assist you in executing a professional private placement offering: (970) 484-1109.

Author: admin

Thursday December 05, 2013

Category: Capital Formation and Regulation D

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