Private Placement Offering Memorandums...

In today's capital markets, the use of private placement offering memorandums (or "memoranda" as the plural is technically referred to) as the basis for the sale of debt and equity securities continues to dominate the capital markets.  More than half of all business capital funding is the result of private placement offerings and the use of private placement offering memoranda are the primary mechanism.  The private placement offering process (as it is strictly applied to debt and/or equity securities and not in terms of a commercial real estate syndication sales plan) is the hardest capital finance tool wield for the benefit of commercial income-producing property developments due to the following issues:

	Due Diligence Expense.  The due diligence documentation expenses associated with a private placement offering of debt or equity securities is not cheap by any means and you should budget a minimum of $350,000 to complete the legal, organizational, accounting, tax, investment banking, architectural, engineering, construction, marketing and operations due diligence areas.  In most cases, the pre-construction phase activities must all be complete and in form and substance satisfactory to the investment banking firm before the offering gets to the starting line.  If you are seeking to develop a commercial income-producing property and the project budget is at least $5 million, then there is an alternative that would allow you to garner funding while you are still in the middle of the pre-construction phase and the funding would be on a non-recourse basis.  This funding approach is not the sale of securities, but the sale of fractional ownership interest commercial real estate via the commercial real estate syndication process.  Click here for more information on syndications.
	Marketing Expense.  All of the expenses associated with marketing and selling out the issue are yours to pay and these costs must be paid in advance, because; nobody is going to raise money at their own risk and then turn the proceeds over to you so you can pay them a commission after the fact.  If you think this is a possibility you are only kidding yourself and you will be the loser.
	Market Impact.  In recessionary business cycles (such as the one the American economy is currently experiencing) the first thing that happens is that institutional investors start re-pricing equity securities and the market would not be particularly interested in a private placement offering owing to a privately-held company.  Investment bankers will always exercise their preference of providing investment banking services to publicly-traded companies instead of private companies if given the choice.  The recessionary business cycle makes it even harder and less realistic for the issuer (that would be you) to complete the process and garner the financing and this is almost always the case with equity security floats.  Debt offerings may be more palatable, but come with the same costs and expenses.

The private placement offering memorandum (commonly referred to as a "PPM") is a disclosure document used by issuers (like you) to inform potential investors about the terms, risks and potential economic benefits of participating in your company's securities offering.  At its core, the PPM exists to provide legal protection for the issuer from claims of investment fraud when things don't go right, so the depth of disclosure is important.  The more disclosures you provide, the fewer issues there will likely be that can be the subject of litigation.  This means that you need the advice of legal counsel that specializes in securities matters to advise you at each stage.  Rainmaker is here to help you marshal together the supporting due diligence documentation that every PPM relies upon in order to sell out the issue.

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