Private Placement Service Provides: Here Are Your Options
When you are ready to seek private investment in your business
, a private placement memorandum may be required by your states law. Even if it is not, this document is highly recommended as it can protect your business from claims of fraud down the road while serving as a compelling sales document in conjunction with a quality business plan.A range of services exist which offer help with creating private placement memoranda.
Low-End Options
At the low-price end of the spectrum, there are services which sell sample private placement memoranda with guidance on how you can customize these to your own business. These options may cost only a few thousand dollars (or even under $100 in some cases). If a writer says he can create your document for a price in this range, he is likely working from such a sample. However, seeking these low price options do not offer you much time or money savings in the long run. These services create generic results and do not offer you in-depth, experienced business consulting to determine how compelling your business story is. Furthermore, you cannot even be certain that the result will meet all legal requirements. To protect yourself and have a good chance of raising funds you must still speak with a business consultant and lawyer.
Law Firms
Law firms often offer the service of creating a full private placement memorandum for clients. This may cost $50,000 or more, but you can be relatively sure that federal and state laws will be met by the resulting document. However, law firms are not business plan writers, and you should still seek advice on the strategy aspects of your plan and offering.
Broker Dealers
Having a FINRA (Financial Industry Regulation Authority) licensed broker dealer create your private placement memorandum means that they can also move forward with you to seek investors, make presentations, and close deals. The broker will continue to develop and change your documents as needed throughout the capital raising process. While you still must have your documents reviewed by a lawyer, you will save a considerable amount of money.
Furthermore, a broker dealer will generally write the memorandum for you for a lower fixed fee than a law firm and charge a reasonable retainer plus a percentage of capital raised for fundraising services. If you work with an unlicensed broker or financial agent, you will have to pay the entire fundraising fee up front. With a broker dealer you can avoid spending a great deal of money up front on fundraising and rest assured that the success of the broker is tied to your success.
Be sure to check on the reputation and quality of the broker dealer before signing a contract. It will be potentially costly and time-consuming to make a switch to a new one part way through the writing and capital-raising process.
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