A question that was asked by one of my visitors, a lawyer or a private placement memorandum in writing required. While the question was in the context of someone who is a PPM design for a customer wanted, the answer has wider applications.
Your PPM has several sections, some boilerplate and some of the information specific to your business, transaction and distribution costs. The standard text paragraphs under the legendary investor, the description of the securities and tax discussions, some of which can be optimized depending on your situation, but in general they have boilerplate sections.
Where do you spend the most time to prepare the term sheet is, the business risk section and discussion section.
Term sheet – The term sheet that describes a part of your PPM, the security you offer your potential investors. The majority of the Term Sheet describes:
• the type of security to offer you (debt or equity securities, and all flavors in between);
• the price you are willing to increase the capital for you (legal interest or dividend warrants, incentive pay, convertible terms, the return of provisions) are to be paid;
• how to pay for the return to investors (PIK, cash);
• how the issue ranks against other capital of the Company (or Fund), and
• Positive and negative covenants. The price is too cheap, and you are not clear, the market (and the risk of damage to your offer) price is too expensive, and you are leaving money on the table. A good lawyer effects years experience in a variety of transactions have involved structures and forms of care.
Section – the risk department is where you discuss the reasons why a potential investor should not invest in your offer.
The Risk Department is where your attorney can offer a lot more value. It is usually only changed a few words, which makes the discussion more transparent, and the addition of certain risks associated with legal / corporate / security, rather than business problems.
Business meetings – Business Discussion section is where you and discuss your business strategy, and discuss why the company strives to raise capital. Some of the points you wish to discuss are:
• History
• what you sell
• Who are your customers
• Why they buy from you
• Your suppliers
• Process (if applicable)
• Activation
• sources and uses of funds
• the historical financial performance, with discussion and analysis
• expected financial performance, with discussion and analysis
So on the expense of sounding wishy-washy, the answer to the question of whether a lawyer for a private placement memorandum, yes and no design required.
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