Exempt Offerings

By Private Placement Handbook Series

Start-ups and other companies can now use general solicitations to fund private placements -- for the first time in 80 years. The new Rule 506 may prove to be the answer to the prayers of some start-ups frustrated with existing fund sourcing platforms. Observe:
• The amount that can be raised is unlimited
• There is no requirement for review of the offering under any Blue Sky laws (state securities regulations)
• There is no review of the offering by the SEC
• Solicitations can be online or offline
• Solicitations can be made to anyone

Sales (as opposed to solicitations, which can be made to the world) must still be to accredited investors, and issuers must get a third-party to verify that each investor is in fact accredited.

Companies will continue to need to use professional private placement memorandum and related offering documents. They also will have to rely on appropriate non-disclosure agreements to keep details of their business plans confidential.

• Language: English
• Publisher: Private Placement Handbook Series
• Release date: Sep 13, 2015
• ISBN: 9781311883957

Private Placement Handbook Series

After getting a JD from Stanford Law School, a MA from the University of Chicago, a diploma from the University College London, and working as a reporter for The Wall Street Journal, Doug was a member of the California bar for 40 years, during which time he founded a series of law reporting services now owned by Thomson-Reuters. Doug specializes in debt and equity crowdfunding. He helps small business identify and solicit sources of private equity. Doug monitors a LinkedIn discussion group, State Securities Regulation, with 1500 members. Connect with Douglas Slain: LinkedIn: http://linkedin.com/in/douglasslain Facebook: http://facebook.com/douglas.slain Twitter: https://twitter.com/exemptofferings Blog: http://www.privateplacementadvisors.com/apps/blog Web site: http://privateplacementadvisors.com

Book preview

Chapter One: First things first

When doing an equity or debt raise for an early stage business, you need to:

Reduce to writing an executive summary, business plan, and financial projection

Determine the structure for the proposed offering

Incorporate or form a limited liability company or other entity

Prepare a private placement memorandum, investor questionnaire and subscription agreement

File exemption documents with regulators

Identify and present to investors

Prepare term sheet(s)

Execute appropriate investor documents

Find the money

Chapter Two: Rule 506 and General Solicitation

Start-ups and other companies can now use general solicitations to fund private placements -- for the first time in 80 years. The new Rule 506 may prove to be the answer to the prayers of some start-ups frustrated with existing fund sourcing platforms.

Observe:

• The amount that can be raised is unlimited

• There is no requirement for review of the offering under any Blue Sky laws (state securities regulations)

• There is no review of the offering by the SEC

• Solicitations can be online or offline

• Solicitations can be made to anyone

Sales (as opposed to solicitations) must be to accredited investors, and issuers must be able to verify that any actual investor is in fact accredited. Also, proposed rules will require issuers to send the SEC all marketing copy; as of September 23, 2013, however, there is no need to send copies of solicitation materials to the SEC (or to state regulators).

Companies will continue to need to use private placement memorandum and related offering documents. They also will have to rely on an appropriate non- disclosure agreements to keep details of their business plans confidential.

Investment funds now will have access to a much wider pool of potential investors than before, subject to separate rules and regulations promulgated by their own regulators.

Chapter Three: What is a Private Placement?

What is a private placement or private offering? They are fund raises that have not been registered with the SEC. When doing either an equity or debt raise for an early stage business, you need to:

Reduce to writing an executive summary, business plan, and financial projections

Determine the structure for the proposed offering

Form a limited liability company or other entity

Prepare a private placement memorandum, investor questionnaire and subscription agreement

File exemption documents with the necessary regulators

Identify and present your business to investors

Prepare term sheets

Verify to the SEC that money is only coming from accredited investors (see Verification Letter below)

Execute investor documents and receive funding

Offering Documents

Once you have prepared an executive summary, a business plan and financial projections, you need offering documents.

I. Private Placement Memorandum

A private placement memorandum is a document that discloses all relevant and material information that a reasonable investor would want to know before deciding whether or not to engage in a proposed transaction.

A PPM is different from a prospectus. The term prospectus is used when referring to an offering document for registered securities whereas the term private placement memorandum is used in reference to securities that are exempt from registration under Regulation D.

Checklist of what can be in a PPM:

  Securities Legends

  Suitability Standards for Investors

  Summary of the Securities Offering

  Risk Factors

  Capitalization of the Company

  Use of Proceeds from the Securities Offering

  Dilution

  Plan of Distribution of the Securities

  Selected Financial Data

  Analysis of Financial Condition and Results of Operation

  Business of the Company

  Management and Compensation

  Certain Transactions (transactions between the Company and its shareholders, officers, directors or affiliates)

  Principal Shareholders

  Terms of the Securities Offered

  Description of Capital Stock of the Company

  Tax Matters

  Legal Matters

  Experts

  Documents Available for Inspection

  Financial Statements

  Projections

  Exhibits

II. Investor Questionnaire is crucial for private