The Pros and Cons of Private Placement Offerings

Sometimes business owners need money and they think private placement memorandums are the best choice. Private Placement Offerings (PPOs) have their time and place, but some business owners are unsure of when and where that is.

If your business is just getting started, a PPO might be a legitimate option. Although preparing PPOs by oneself is time-consuming and stress producing, preparing PPOs can help your business if you have family and friends that know that you need money and have the ability and desire to help you. PPOs probably can’t help you if you have no family members or friends who do not have the desire or the means to help you. This is because PPOs require that the people involved know you. They must be associated with you or your company personally. They are called Private Placements because you must keep the information about the need for capital within your primary market and cannot use the general public to fulfill your needs.

If you are able to use friends and family, be as conservative as possible in your projections. One of the negative aspects of PPOs is that if you don’t do what you say you’re going to do, you might get a talking to at the office – but the heated and downbeat conversation also might spill over into family reunions.

If your friend or family member wants to invest by using a PPO, try to make an arrangement to return his investment that you will be happy with too. If he is asking for a high percentage of the company, for example, might not matter to you when you sign the contract – because you are getting the money you need. However, it will matter to you if he decides to sell it, or get a new manager, or introduce a new product that you are against selling. 

For PPOs, most investors must be accredited. That means they need to have a net worth of more than a million dollars not including their homes. With today’s economy the way it is, accredited investors can be difficult to find.

If you have been in business for more than two years, and your business is worth more than $2.5 million dollars, posting your business with the Independent Stock Market (ISM) is a much better option than a PPO. With ISM you can use accredited and non-accredited investors. You can advertise that you are looking for capital to the general public. You can use your sweat equity and initial investment to get the capital you need, without paying interest or giving up control of your business.

If you have a smaller business though, or have not been around long enough to qualify to post with ISM, the ISM Business Development Group can help prepare your company for a Private Placement Offering so that you do not have to try to perform the process for yourself. Contact an ISM representative today.