At Goldwin.associates, we frequently compare the creation of a prospectus – or any offering document distributed to investors, including a feasibility study – to the creation of a business plan. Your prospectus, whether for a private placement or a public offering, should flow continuously and, ideally, smoothly. Your writing, structure, and style should not bore or "turn off" investors. When writing any corporate document for investment consideration, even an ICO white paper, you should put yourself in the shoes of the audience who will be considering the investment. Is your prospectus logical? Is there an underlying message that compels a prospective investor to invest in the company? Or, is the offering document leading the reader astray rather than flowing naturally?
If the aforementioned questions are not adequately addressed, your chances of raising funds will be harmed. Thousands of prospectus and offering memorandum writing projects have been completed by our staff members. We frame your value propositions in a way that will pique the interest of investors from the start of the document. Our team will make certain that your prospectus offering document is structured and styled correctly, in accordance with investment industry best practices. If you are a startup, you should read this first and then contact us!
◆ Understand your target audience: your investors
◆ Describe how you intend to make money
◆ Maintain a straightforward approach
◆ Understand your market
◆ Demonstrate how the company can grow
◆ Please introduce the team
◆ Make it clear what the risks are
◆ Describe how you intend to use the funds
◆ Display your financials
◆ Have an exit strategy in place
Each is described in detail below...
While you may be wondering why investors are ranked first and what this has to do with writing a prospectus, the answer is: everything. You're creating a prospectus for a specific audience. You must keep them in mind as you begin writing. If your product or service is related to baseball, you should not write the prospectus as if your investors are interested in space technology. Your investors are interested in baseball and sports in general. As a result, before you begin writing, you must first identify your investor target market.
The entire purpose of a business, and those seeking to raise capital, is to make a profit (i.e. to make money). From the cover page, your prospectus should convey the message that you can generate a profit for your investors. It is self-evident that any business plan or prospectus demonstrates that the company can generate a profit; otherwise, few people would invest in a company that does not demonstrate that it can generate a profit. You must convey from the beginning of the prospectus that you can (honestly) generate a return on investment. Services or products that generate small amounts of revenue may be viewed as a hindrance to others that generate much larger amounts of revenue. Concentrate on the most profitable products and services, and your prospectus will be much stronger.
In addition to demonstrating your ability to turn a profit, you will want to keep your prospectus flowing, no matter how long it is. Most of the time, the simpler the prospectus, the easier it is to communicate your message. By “simpler,” we mean staying on message, avoiding tangential, non-essential details, and clearly explaining the product and services, as well as the market and risk factors. Many of the investors who will read your prospectus will skip from one section to the next, often skipping information to look at a section that they believe is more important. As a result, you should design a prospectus that is easy to read and conveys the general idea of the subsequent information from the first paragraph of any section. You must consider in your analysis that an investor's attention may only be captured in the first few lines of any section, and it is therefore critical that you capture their attention right away.
A well-written prospectus will detail your products' or services' current and potential future market conditions. When writing a prospectus, private placement memorandum, or other offering memorandum document, many people underestimate the importance of the overall market and potential market. Investors want to know about the current market and whether the company will be able to survive in the future. The market size, market reception to your service offerings, and the future growth or decline of your industry all influence the longevity of any business.
The scalability of the company's products and services should be prominently displayed and easily accessible in the prospectus. The ability of the company to scale up is one of the most important factors investors consider when making an investment decision. A good portion of the scaling capability will be conducive to market conditions; however, a team that can navigate rough waters or a down economy will be a more important factor to scale than market conditions. The prospectus or any offering document must demonstrate how the company can scale based on current and future market conditions, as well as the evolution of its products and services.
An overview of the management team, and thus who is running the company, is one of the most important sections of any prospectus. This section will include biographies of the company's key executives. It will be critical to highlight the management team's experience and qualifications in managing both the incoming funding (hopefully) and the business model's execution. In addition to the management team, the prospectus will list other key individuals who help the company. For example, depending on the structure and type of offering (equity versus debt), the legal team will be mentioned, as will the underwriter(s), fund administrator or fund manager, the company's paying agent, and others.
This section of the prospectus should detail any perceived risks or threats to the company's business model. For example, an oil and gas exploration company may face specific risks such as drilling and discovering no oil, machinery failure, or a lack of a buyer for its supplies, among others. These are industry-related risks. A global economic downturn could have an impact on oil prices and the company's profitability. Natural disasters, on a broader scale, could stymie exploration and, as a result, product sales. Regardless of the industry, all risks should be considered and included in the prospectus, which in good faith informs the market.
The prospectus' funding requirements section outlines how you intend to spend the funds you raise. It is a gilded use of proceeds section that will specify how the money will be spent. For example, if your company is in the oil and gas exploration field and you are raising $10 million, you could show that $5 million will be used to purchase equipment, $2 million will be used to refine the oil, $1 million will be used to lease the land to drill, $1 million will be used for salaries, and $1 million will be used for working capital. The idea is that you will demonstrate why you need the money and detail your expenses. You must also allocate the funds specified in the prospectus to the area for which they are intended. If you want to change how these funds are allocated, you may need to get board and investor approval first. Finally, in this section, you should discuss the possibility of future capital raising initiatives.
This section of the prospectus summarizes the company's past, present, and future financial position. It contains a current balance sheet, a profit and loss statement, and any pro forma statements about future revenue and expenses. Furthermore, depending on the type of entity and whether the company is private or public, and each of these has different rules, the financial statements may need to be audited, or an exemption from audited financials may be used. The financial section should show the company's fiscal responsibility.
The prospectus's exit strategy section is a critical component of the offering document. Any investor must understand and be comfortable with the specifics of their exit strategy. The public offering is an exit for an IPO. Private companies typically exit when they are purchased, but in most cases, the company's owners cannot simply sell their own stake to a larger audience. In contrast to an illiquid company, the IPO allows for a larger buying pool, or a more liquid audience. The future plan you offer for providing an exit for investors is likely the single most important factor any investor considers before providing capital.
Writing a prospectus provides an opportunity to demonstrate three key points to investors. When writing your offering memorandum or prospectus, keep the following four questions in mind:
◆ What exactly are you doing, and why is this necessary?
◆ How do you write an enticing prospectus that will pique the interest of investors?
◆ How should the amount of capital that should be solicited be determined?
◆ When will the investor see a return on their investment, and at what profit?
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