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Private Placement Memorandum Primer For Physicians

PPMs for PCPs.

Securities offered to the public need to be registered with the SEC. Regulation D contains three rules providing exemptions from the registration requirements, allowing some companies to offer and sell their securities without having to register the securities with the SEC.

As described in the Securities Act of 1933, securities sold in transactions "by an issurer not involving any public offering" is called a private placement. The disclosure document describing the private placement is called a private placement memorandum. Whether you are an entrepreneur considering a private placement financing or an investor looking for early stage investment opportunities, there are a few things you should know about PPMs.

PPMs describe the company, the terms of the proposed deal, the proposed uses of funds, forward looking financial statements (best guesses) and the risks associated with the financing. The risks, as required by the regulatory agencies , are usually ennumerated in excruciatingly gory detail to make sure you understand everything associated with these kinds of investments. Remember that these are not registered securities so a disclaimer contained in the PPM will state that the SEC has not passed on the accuracy of the information you receive.

Rule 505 covers private offerings not exceeding $5M within a 12-month period and allows an unlimited number of accredited investors to purchase the securities. Individual accredited investors must meet certain financial tests that include:

  • A net worth, individually or with a spouse, at the time of purchase of at least $1M, and
  • The individual's gross income for each of the last two years was at least $200,000 ($300,000 with spouse, with the expectation of at least the same income in the current year

If you request a PPM as a potential investor, since it is private, you will be asked to sign a confidentiality agreement stating that you will not pass on the numbered PPM to anyone else. In addition, you will be asked to sign an statement attesting to the fact that you are an accredited investor.

You should also understand that if you buy securities in a private placement, that the securities cannot be resold without registration or an exemption .

If you are interested in learning more about Regulation D offerings, check the SEC website at

Private placements are common way for early stage companies to raise money. Floating a private placement requires requires help from experienced, knowledgeable consultants like investment bankers or securities attorneys. If you are invited to invest in a private placement, read the documents carefully and  be sure you understand the risks and consequences of investing.

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