Founders ask me two questions about a private placement memorandum before anything else: Do I need one? and What will it cost?
The first question is covered in What Is a PPM and When Do You Need One?. This article is about the second. I will explain what drives the price, what you should get for it, and the shortcuts that look cheap and end up costly.
Why PPM Quotes Vary So Much
Ask five firms and you may get five very different numbers. Founders on forums regularly describe quotes of tens of thousands of dollars as shocking. Some of that spread is the firm's size and overhead. Most of it is the deal itself.
The real cost drivers are:
1. The exemption. A 506(b) offering with any non-accredited investors requires disclosure close to a registered offering, including financial statements. A 506(c) offering sold only to verified accredited investors gives you more room. Regulation A is a different project altogether — it is reviewed by the SEC.
2. The company's history. A clean company with simple ownership is faster. Prior raises with sloppy paperwork, convertible notes with unusual terms, SAFEs at different caps, or unclear cap tables add work, because the PPM has to describe them accurately.
3. The security being sold. Common stock is simplest. Preferred stock, convertible notes, revenue shares, or LLC units with special allocations need more drafting and more risk disclosure.
4. The industry. Regulated businesses — cannabis, crypto, healthcare, real estate funds, anything touching consumer finance — need industry-specific risk factors and sometimes regulatory analysis.
5. Financial statements. Whether they exist, whether they are reviewed or audited, and how current they are.
6. How many states. Notice filings and fees in each state where you sell.
7. How many rounds of revisions. This is where hourly billing hurts most. Every call and every redline adds time.
What a Complete PPM Package Includes
Price only means something if you know what you are buying. A full package should include:
- ›The memorandum — business description, management, terms of the offering, use of proceeds, capitalization, risk factors, conflicts of interest, and tax considerations.
- ›Subscription agreement — the contract the investor signs, with investor representations.
- ›Investor questionnaire — documenting accredited status (and verification for 506(c)).
- ›Corporate approvals — board resolutions authorizing the offering.
- ›Form D and state notice filings.
- ›Review of the pitch deck and marketing material so it matches the PPM.
If a quote leaves out the subscription documents or the Form D, it is not comparable to one that includes them.
Cheap Shortcuts That Get Expensive
Templates and online forms. A generic PPM with your company name dropped in does not describe your risks. In an enforcement case or investor suit, a missing or boilerplate risk factor is exhibit A. When I was at the SEC, generic risk disclosure that ignored a known problem was a common thread in disclosure cases.
A PPM that contradicts the deck. Investors read the deck. If the deck promises more than the PPM discloses, the PPM's careful language may not protect you.
Skipping the exemption analysis. A beautiful document for the wrong exemption is worthless. If you advertised, you are not in 506(b) no matter what the PPM says.
Paying an unregistered finder. No PPM fixes that.
The cost of a rescission demand, a state regulator inquiry, or an investor lawsuit dwarfs the cost of doing the document right.
Hourly vs. Flat Fee
Most securities lawyers bill hourly. With a PPM, that means you cannot know the final number until the work is done, and every question you ask raises it. I wrote about that dynamic in How Much Does a Securities Lawyer Cost?.
My firm quotes PPMs as a flat fee, in writing, before work begins. The quote is based on the drivers above. You know the number up front, and you can call with questions without watching a meter.
How to Get an Accurate Quote
Send your securities lawyer these items and the quote will be far more precise:
- ›Your current cap table and any prior offering documents.
- ›All outstanding convertible notes, SAFEs, warrants, and options.
- ›The amount you want to raise and the security you plan to sell.
- ›How you plan to find investors (this decides the exemption).
- ›Your most recent financial statements.
- ›Your pitch deck.
Related Reading
- ›Regulation D Under the Securities Act: Rules 504, 506(b) and 506(c)
- ›PPM Attorney — Flat Fee
- ›Flat-Fee Securities Lawyer
- ›Private Offering Checklist (PDF)
Questions about how this applies to your company? Email me directly at flehrer@securitiesattorney1.com or call (561) 706-7646. No intake form, no screening call.
This post is general information, not legal advice.
Authoritative Sources
- 17 C.F.R. §§ 230.500–230.508 — Regulation D — Electronic Code of Federal Regulations
- SEC Investor Bulletin: Accredited Investor Definition — U.S. Securities and Exchange Commission
- 17 C.F.R. Part 240 — General Rules and Regulations, Exchange Act — Electronic Code of Federal Regulations
- SEC EDGAR — Full-Text Search of Company Filings — U.S. Securities and Exchange Commission
- Securities Act of 1933 (15 U.S.C. §§ 77a et seq.) — U.S. Government Publishing Office
- Securities Exchange Act of 1934 (15 U.S.C. §§ 78a et seq.) — U.S. Government Publishing Office
Primary sources are cited so readers can verify the law directly. Rules and staff guidance change; see our editorial and corrections policy to report an error or an outdated citation.
Frederick M. Lehrer served as an enforcement attorney in the SEC's Division of Enforcement at the Southeast Regional Office from 1991 through 2000, and concurrently as a Special Assistant United States Attorney in the Southern District of Florida from 1997 through 1999, prosecuting securities-related financial crimes. He has practiced securities and corporate law in private practice for more than twenty-five years, advising issuers worldwide on SEC registration, disclosure obligations, Regulation D private placements, Regulation A offerings, and going public transactions. The firm is based in Florida and serves clients internationally.
Questions about how this applies to your company are answered personally — most within the same business day. Flat-fee arrangements available for most work.