Best Practices for Startup Private Placement Memorandums – Startup PPM

You're a startup, and whether you're in "pre-revenue" or just getting started, you're probably raising capital to fuel your nascent stage startup, and you're trying to figure out how to write your startup PPM (private placement memorandum). While there is no significant difference in best practices for the structure of a startup PPM and a PPM for advanced stage enterprises, there are some nuances to consider given that your pro forma (i.e. financial statements and related projections) are likely to be “light” in the context of having a substantial balance sheet or income statement.

A startup PPM, like any other PPM, includes the material elements of your business plan (also known as a “Information Memorandum”) or, at the very least, your Executive Summary. In many cases, the Information Memorandum (IM) is an Exhibit to the PPM, as the “IM” provides your prospective investors with a comprehensive road map regarding your intended business model, marketing and sales strategies, company management backgrounds, use of proceeds, projected revenue and profit forecasts, and prospective ‘exit strategies.' The PPM repurposes the critical elements of the business plan, also known as a "feasibility study," and is the document that frames the terms and conditions of the offering–"how much for how much." Startup PPM documents frequently frame the investment opportunity as a purchase of an equity stake in the enterprise, which can take the form of shares if the entity is a C Corp, or units if the offering entity is a Limited Liability Company (aka "LLC"). Startups can also raise capital by borrowing money and selling debt or notes, which provide investors with a fixed rate of return on their capital over a set period of time. Notes are obligations of the company that can be secured with certain collateral if the company is unable to pay interest on the debt or repay the principal amount when the note matures. Unsecured debt prevents the lender from attaching a lien to specific company assets, but it does position the lender as a creditor in the event of a default or actual bankruptcy.

The decision to raise capital through debt rather than equity is generally made only when management has a high degree of confidence that revenue generated will be sufficient to cover interest expenses on the notes or if the company has significant material assets, such as unencumbered real estate holdings or Intellectual Property in the form of patents that are deemed to have significant value.

Regardless of the type of instrument offered to investors, any Startup PPM will be advanced to those investors after they have reviewed your "Presentation Deck," also known as the Pitch Deck. Assuming you've put together what's best described as a compelling, but otherwise condensed version of your comprehensive business plan, prospective investors should expect to be given your IM and, ideally, the PPM, which includes a subscription agreement and accredited investor questionnaire.

The Goldwin.associates LLC team has extensive experience preparing a wide range of documents that startup entrepreneurs are expected to advance in the course of framing their investment opportunity in order to raise capital. Our in-house team and captive consultants work with startups in a variety of industries, including fintech, medtech, martech, adtech, and blocktech aka blockchain, as well as startups introducing innovative consumer products and emerging cannabis enterprises. We also have domain expertise and can help with a feasibility study for a real estate project, a restaurant concept, or those looking to raise capital for a destination venue like a hotel or theme park. We can assist with projects such as preparing the information memorandum, pitch deck, and the critical Startup PPM document.