Do I Need a PPM and How Much Will It Cost? Part II

Close up image of businesswoman hands signing documents

What Are My Options for Getting a PPM? 

In my previous post, I described the securities laws pertaining to raising private capital for your company and the importance of a comprehensive and customized PPM. Now that you have decided you want to protect your company by using a PPM, you may be thinking about – or have done some research already on – your options, which include everything from hiring a big law firm to trying to do it yourself.

COSTS: Wide Price Range

There is a significant range in pricing among these options and you may receive price quotes ranging from $2,500 to $35,000. Why the tremendous range in price?

OPTION 1: Large Law Firm

Big law firms have big overhead, including supporting high salaries for associates and partners. The firms will likely charge at least $35,000 to draft a PPM.  Keep in mind that only one or two attorneys would be working on your documents, despite the size of the firm, and these lawyers may not even be specialists in private placements, but rather have a more general corporate securities background. These firms may also require an equity interest in your company. Ultimately, the work will probably be good and your interests should be well protected, but the high price tag will choke many startups and entrepreneurs. 

PPM LAWYERS focuses exclusively on private placements and provides flat-fee services.

Click here to schedule a free consultation and find out about our services and rates.

OPTION 2: Non-Attorney Drafter

In your research, you may also come across small firms that offer PPM drafting services for under $5,000. The service providers at these firms are generally not lawyers at all. In this case, the person or people drafting your PPM may have general business experience and will probably model your PPM on a template or sample PPM. If your drafter is not a trained or experienced lawyer, there is a high risk that s/he will miss important nuances and complexities of the federal and state securities laws that apply to your particular business and offering. (See Part I of this blog)

Be sure to ask the person preparing your PPM what exemption or exemptions your offering should fit into and what facts and regulations s/he has analyzed in making that determination.  Ask whether s/he will be drafting industry- and company-specific risk factors for you (see my blog on risk factors), or if the PPM will only include boilerplate risk factors. And be sure to ask if s/he will be handling the regulatory filings for both state and federal, as well as what the firm will do in the event an investor complains or has issues with the PPM.

Ultimately, in the case of a non-attorney PPM drafter, you run the risk of getting a final product that does not adequately protect your company and leaves you vulnerable to grave legal exposure and compliance issues.

OPTION 3: Solo Practitioner Attorney/Small Firm

There are also small law firms, sometimes solo practitioners, who will draft a PPM for anywhere from $5,000-$15,000. With such a firm, be sure to find out how much experience the attorney has in corporate securities law in general and PPM practice in particular. Most small firms do not specialize in private placements and may lack the ability to fully understand the nuances of the rules and regulations that apply to your company.

Another consideration with a small firm or solo practitioner is their ability to take calls, discuss your project, and complete your documents within a reasonable time frame. Solo practitioners, in particular, are often overworked and unable to provide focused, personalized service.

It is also important to find out if they are charging you by the hour or with a flat fee.  Billable hours have a way of building up to cost prohibitive levels.  Find out exactly what you are getting from this lawyer.  Will they handle the regulatory filings, and is that included in the cost?  Are they drafting custom risk factors that are industry- and company-specific?  Are they providing ongoing support or advice throughout the offering, and is that also included in their price quote?

Finally, do your homework on the firm you are considering to ensure that they have a track record of satisfied clients, that you can trust them to complete your PPM in a reasonable time frame, and that they can provide the support you need throughout the process.

PPM LAWYERS focuses exclusively on private placements and provides flat-fee services.

Click here to schedule a free consultation.

OPTION 4: Doing it Yourself from a Template

PPM Templates are available in the $100 price range. While this low cost is attractive, especially for a startup or small business, consider these factors before you use a PPM template.

  • How will you assess whether the template provides a comprehensive structure, includes all necessary components, and reflects the most recent changes in applicable laws and regulations?
  • How much time do you have to dedicate to working on your PPM? A comprehensive PPM generally runs 40-50 pages, not including exhibits and appendices. In addition, the language in most templates is likely to be very confusing for a layperson.
  • Will the template provider help you? If so, see the “Non-Attorney Drafter” section above. 
  • Templates are boilerplate documents that have little relevance to your particular business or offering. A good PPM drafter conducts extensive research to ensure that the document is fully customized for your particular business.
  • How will you ensure that you’re not making any mistakes with respect to the proper legal exemptions and disclaimers, disclosures, risk factors, securities offering structure, or ownership tables?

Think carefully about these considerations before you spend a lot of time trying to draft your PPM from a template. The answers to these questions are often the difference between a successful raise and a waste of time, let alone the catastrophe of an investor complaint down the road. 

Laws and regulations have changed dramatically in recent years and remain in flux; it’s critical that your PPM document reflect the most current state of the law. The complex legal language is difficult to navigate for most people and if you miss something or misinterpret something, you could be putting yourself and your company at risk. Most entrepreneurs will not want to take the risks involved with trying to draft one themselves. Remember, a strong PPM not only impresses investors but also stands as your shield against legal exposure and compliance issues. 

If you’re thinking you can draft your PPM yourself from a template and then engage a lawyer to sign off on it, keep in mind that no good lawyer will put his/her name on a document that they can’t stand behind 100%, due to professional liability concerns. If you do find a lawyer who is willing to review your document, it is likely to be at a substantial cost, because careful review of a PPM document is an extensive process. If you are considering this option, you would be wise to first identify a lawyer who is willing to provide the review and find out what they will charge. 

PPM LAWYERS offers fixed fee template review – click here for a free consultation call.

CONCLUSION

If you want to be able to sleep at night and not waste your money, your best bet is to retain an experienced lawyer who specializes in private placements to prepare your documents and provide full coverage and support to you for the entire transaction. Raising capital from investors is not to be taken lightly.  Cutting corners at this stage, looking for a cut rate service provider, or spending any money at all to have an inexperienced or unqualified person draft these legal documents is often a waste of money, and can come back to haunt you down the road.

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