When it comes to raising capital, a private placement memorandum (PPM) is a vital document that outlines the terms and conditions of the offering to potential investors. It is also a legal document that must comply with securities laws and regulations. While it may be tempting to cut costs by opting for the cheapest PPM or legal services, this can actually be a very bad idea.
You Get What You Pay For.
First, using a cheaper PPM service or legal provider can mean sacrificing quality. These providers may use templates, cutting corners or use less experienced staff to create the PPM, which can lead to errors or omissions that can put your offering at risk. A poorly drafted PPM can also make it difficult to attract investors, as they may not trust the credibility of the offering.
Mistakes Are Costly!
Secondly, opting for a cheaper PPM service or legal provider can put your offering at risk of non-compliance with securities laws and regulations. These laws and regulations are complex and constantly changing, and a cheaper provider may not have the expertise or resources to stay current with them. This can lead to costly legal battles, fines, and even criminal charges.
Thirdly, a cheaper PPM service or legal provider may not have the expertise to navigate the various regulations that apply to different types of offerings, such as Regulation D, Regulation A, or Regulation CF. This can lead to offering investors an incorrect or inappropriate investment structure, and can put your offering at risk.
Moreover, using a cheaper PPM service or legal provider may also mean missing out on valuable industry connections and relationships. A more established PPM law firm can offer connections and relationships that can open doors to new business opportunities and help your company stay ahead of the competition.
Additionally, paying as little as possible for PPM or legal services can also lead to a lack of communication and collaboration. Cheaper providers may not be as invested in the success of the offering and may not be as responsive or communicative as a more expensive provider. This can lead to misunderstandings and delays, which can ultimately drive up the cost of the offering.
Consider Long-Term Value and Support.
Furthermore, when choosing a qualified PPM lawyer or law firm, it is important to consider the long-term value they can provide to your company. Cheaper services may not have the same level of experience and expertise, which can limit the potential for future growth and success.
A Cheap PPM Could Turn Off Investors.
Moreover, a PPM is not just a legal document, but also a marketing tool to attract and educate investors. A cheaper PPM service or legal provider may not have the same level of experience and expertise to create a compelling and persuasive document that can attract investors.
So, What Should You Expect To Pay?
So, what should you expect to pay and how do you know if you are paying too much? Well, there is quite a range in legal costs for a PPM from qualified lawyers and law firms. Some of the factors affecting price are the services that are actually included in a firm’s legal fees. Be sure you are getting a full-service package that includes a custom drafted PPM, subscription agreement, investor questionnaire, and an operating agreement (for LLCs). Also, be sure the service includes counsel and advice from an experienced securities lawyer. Finally, be sure the service includes the requisite SEC and state filings. If you get such a full service, you are probably going to pay between $12,000 and $25,000, depending on size and scope of your proposed offering. Fees that are much lower or bargain basement should be looked at with skepticism, and you should ask what is missing from such a low-cost service. Higher fees usually come from BigLaw firms that must support a large infrastructure and high-priced staff.
In conclusion, while paying as little as possible for a PPM or legal services may seem like a good financial decision, it can ultimately lead to a host of problems and cost you more in the long run. Choosing a provider based solely on price can mean sacrificing quality, putting your offering at risk, and missing out on valuable industry connections and relationships. Making a mistake in this process can even lead to legal liability, SEC complaints, many tens of thousands of dollars in legal costs, and even land you in jail! It’s much better to invest in a reputable and experienced law firm that can help ensure SEC compliance, as well as the success and credibility of your offering and provide long-term value to your company.