Private Placement Memorandum for Friends and Family?

Private Placement Memorandum for Friends and Family?

Do you need a private placement memorandum for a friends and family capital raise?

At first blush, you might think that creating a private placement memorandum can be done without an attorney.  All you need to do is talk about the business plan, take the investment money, and then file a Form D with the SEC and then notice the state where you raised the capital, right?

One thing you might not realize is that in order to make the offering circular fully compliant, you need to give your investors access to the same type of information that they would have access to if the startup was a public company.  Since public companies need to file a Form S-1 when they initially register shares, in order to protect yourself you essentially need to disclose to your investors (and believe me, ESPECIALLY friends and family), the same type of information required by Form S-1.  That means you should follow the information required by the instructions to Form S-1 which are detailed in Regulation S-K.

Unless you are a securities attorney, then this is a monumental undertaking–even licensed attorneys in other fields don’t get this right and produce disclosures that are not compliant and expose you to liability.  

What I would do is two-fold: (1) hire a securities attorney as soon as possible to help you put together your private offering memorandum; and (2) begin writing an exhaustive business plan using a site like www.liveplan.com.  Beware, this business plan will not be fit to circulate to your investors. However, it will be immensely useful to an attorney drafting your offering circular. The last thing you want to do is make your attorney write your business model and business plan.  An attorney will usually reduce their prices substantially if there is an excellent business plan to work with while drafting their offering memorandum (or commonly known as a “Private Placement Memorandum”).

Your attorney should be able to help you find licensed Broker/Dealers to guide you through the process as well and help you safely raise capital.

The stakes are high. People go to jail for improperly disclosing investments to investors.  You are certainly in need of some serious assistance on such an undertaking.

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