WHY US FOR PRIVATE PLACEMENT OFFERINGS?

Nearly any venture can sell its own equity and debt securities (shares, units, etc.) to investors as a means of raising capital. While private small to mid cap companies may not have the resources to go public, they can avail themselves of legal exemptions that allow them to sell securities without doing so (Regulation D). However, successfully leveraging these exemptions is an involved legal process that demands seasoned professionals, namely consultants and private placement attorneys who are skilled at navigating the maze of state and federal private securities laws and regulations. Engaging an outfit that provides consulting and marketing services, coupled with private placement attorney counsel, is crucial to ensure a quality offering and avoid the penalties associated with violating these exemptions.

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	RAISING CAPITAL REQUIRES SEASONED ATTORNEYS
	GENERAL SOLICITATION REQUIRES SEASONED ATTORNEYS
	OUR UNIQUE VALUE PROPOSITION

Raising Capital Requires Seasoned Attorneys

When private companies seek to raise capital they typically leveraging one of two avenues, Regulation D or crowdfunding under the Jobs Act, to avoid the laborious and costly process of a public offering. A Regulation D capital raise has many moving parts and real penalties for non-compliance.

Raising Capital is a Legal Process: The state and federal governments provide a “safe harbor” for you, the issuer. In short, the state and federal governments leave it the issuer to: 1) ensure your investors have the documentation to make an informed decision; 2) ensure the states in which your investors reside have been put on notice that you are raising money; and 3) have the contracts in place that define your relationship with your investors.

The Private Placement Memorandum is a Legal Document: At the heart of this process is the disclosure document, or the private placement memorandum (“PPM”). It apprises investors of the venture, the likelihood of success, headwinds and risk factors, and other salient aspect of the investment (so the investor can make an informed decision.) No effective PPM is a pushbutton template. Rather, a viable PPM is the product of legal craftsmanship, planning, and risk management. It is a legal document, best drafted by attorneys with a real understanding of the fundraising process, as well as the dynamic legal landscape that underlies that process, who then work closely with the issuer, its principals and consultants.

Getting It Wrong (Why not Use a PPM Factory/Template): Complying with the “safe harbor” rules is not just a formality, it is the very basis for conducting a private or crowdfunded offering. And it is the very blueprint for avoiding penalties should things go wrong (failure of the venture, investor lawsuits, government suits, and all the other risks facing nearly every venture). Hence, attorneys are necessary to insulate against liability–by assuring the language and structure of the PPM properly discloses the unique risks to the venture, without inadvertently inflating likelihood of success or misrepresenting the merits. Well calibrated language is even more critical since even minor errors can lay the foundation for major lawsuits. Moreover, following the spectacular investor scandals of the past five years, there is unprecedented oversight and enforcement by the State Attorney’s Offices, the US Attorney’s Offices, Securities and Exchange Commission, and Secretaries of States Offices throughout the nation.

The principals of any company raising capital are potentially exposed to personal liability for “fraud” in the event of a faulty or nonexistent PPM, which could lead to investor lawsuits and/or state/federal action (even if investor monies were legitimately spent) seeking the following penalties:

1) Get the $$ back from the principals personally (i.e., ignore the Corporation or LLC);

2) Blacklist the principals so they can’t raise investor money in the future; and/or

3) Impose criminal sanctions.

With this much at stake, the PPM drafting process is really about avoiding future legal catastrophes. Hence the boiler plate/template PPM is potentially useless in the best case or actually dangerous in the worst. In short, purchasing a PPM from a template shop or having one drafted by a factory, without experienced attorneys involved is an investment in future liability.

Deal Structure: While a PPM is the heart of a private offering, there are many other considerations and decision points that require a skilled and experienced hand. In particular, the actual structure of the offering (as a small sample: debt versus equity, waterfall mechanics, pro formas, conversion mechanics, investor rights, etc.) is not something that should be randomly chosen. A brief summary of those considerations are below, any of which can have drastic implications for the overall character of the private placement offering:

• Pre Offering Analysis and Consultation: Analyzing the venture prior to designing the offering structure so as to identify and offset major weaknesses in the venture itself that may undermine investment viability is a key step.

• Debt versus Equity: One of the primary concerns for any private placement offering is the actual “security” to be offered. Contrary to popular belief, one can sell data security as well as equity (i.e., the difference between an investor actually owning pieces of the company, versus the investor owning an obligation to pay back a debt). Since this is a major strategy point careful consideration has to be given to the various pros and cons of both approaches, which can have far-reaching implications.

• Optimally Choosing from Various SEC Exemption Rules: There are various “flavors” of private placement offering exemptions that each have their own set of pros and cons (e.g., the total amount of the capital raise, the nature of the documents required for prospective investors, etc.). Properly navigating between them so as to optimize the options and minimize the requirements of the issuer is a key strategy point and requires careful planning.

• “Blue Sky” Filing Strategy and Implementation: All private placement offerings have a double government footprint–a state footprint based on the residence of each investor, as well as the federal footprint which applies across the board. As a result, private placement offerings generally require notification filings (i.e., forms that indicate the nature of the offering, the principals involved, etc.) to be made with these states as well as the federal government. Each state has its own set of requirements which can add complexity and costs. Properly navigating between them so as to optimize the options and minimize the requirements of the issuer is a key strategy point and requires careful planning.

• Share and Unit Classes and Rights: An issuer cannot simply sell “shares”, without considering what investor rights, duties, and obligations attach to each (information rights, management rights, payout preference, etc.). As a result, while pricing the shares or notes is also key, special care should also be given to the various classes the shares, notes, etc. can take since that will dictate many of these rights, duties, and obligations (e.g., common, preferred, or convertible preferred equity).

• Engineering the Capitalization Structure: Properly devising the company capitalization structure (how many shares makes sense given both current and future capitalization/growth needs, company valuation and share, etc.) requires careful planning. Using figures that do not factor in long term considerations can potentially harm the company’s growth and deter investment in the current offering.

• Min/Max Offering: In certain cases, an issuer may be required by statute to or may desire to set a minimum threshold of investment that must be met prior to releasing or being able to utilize the funds. This is a tricky consideration and must be planned with care, so as not to unduly hamper the offering with over onerous thresholds, while still satisfying investor and statutory requirements.

• Engineering Investor Returns and Waterfalls: At the heart of any offering is the actual model of return for an investor. Each offering is different in terms of incentives, industry norms, participants, and a variety of other factors that may affect these models. In addition, a venture or project may leverage a jigsaw puzzle of funding sources including private equity or debt and institutional sources that may also affect these model.

• Marketing Strategies: Any private placement offering should be generated with a robust understanding of the optimal strategy to market that offering based on a solid sensitivity to the investor audience.

General Solicitation Requires Seasoned Lawyers

No venture should overlook the opportunity to advertise its private placement offering to investors, especially when the government has given us the key to do so.  Under the 2012 JOBS Act, a new provision of the commonly employed Regulation D Rule 506 exemption permits general advertising of an offering to accredited investors. Hence newly minted section 506c of rule 506 is often referred to as the “general advertising” rule. This new rule marks a tectonic shift in private offerings, essentially permitting an issuer to leverage the exposure of a public securities offering (and crowdfunding) without sacrificing the benefits of a Regulation D private placement offering (lower preparation and compliance costs, less onerous overall process, potentially unlimited capital threshold etc.) However, as with the various other technical issues inherent in any private placement offering, the general advertising rule is a legal compliance issue that demands seasoned attorney oversight.

As of September 23, 2013 rule 506c has gone live, backed by a set of SEC regulations. Hence, issuers may now engage in general advertising and solicitation of accredited investors for their rule 506 private placement offering. The 506c offerings are very similar to its traditional 506b counterpart, but provide the following critical tools/requirements:

• The issuer takes reasonable steps to verify that the investors are accredited investors under Rule 501 of Regulation D, and

• All purchasers of the securities are accredited investors or the issuer reasonably believes that the investors are accredited at the time of the sale of the securities.

To fulfill the “reasonable steps” requirement, the issuer must consider the facts and circumstances of each purchaser and the transaction. The SEC has created a non-exclusive list of factors that issuers should consider in making their determination:

• The nature of the purchaser and the type of accredited investor that the purchaser claims to be;

• The amount and type of information that the issuer has about the purchaser; and

• The nature of the offering, such as the manner in which the purchaser was solicited to participate in the offering, and the terms of the offering, such as whether it requires a minimum investment amount.

Our Unique Value Proposition

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Competitive, transparent, flat fee structures that match or beat most small law firms and consultancies for the following high value services/deliverables:

1) Offering services performed by experienced securities attorneys, with large firm experience and top law school educations.

2) Significant practical experience drafting and implementing private placement offerings and consulting clients on the capital and fundraising process.

3) Robust business consulting, planning, strategy, and execution services.

RW Law provides total capital raising solutions backed by large law firm skill and experience, but with extremely aggressive fee structures. We have successfully tailored fee structures for a variety of clientele and budgetary constraints to get the job done effectively. For example, our affiliated lawyers have devised private placement offering packages, complete with all drafting, blue sky, and consulting deliverables for as low as $4,000. Most importantly, our management team has 30 years combined securities and corporate law experience–our singular goal is to bring that experience to custom private placement memoranda that protect our clients’ bottom line.

• Offerings Drafted and Managed by Experienced Law Firm Attorneys: Our company provides access to experienced boutique law firms comprised of attorneys with significant private placement and capital formation experience. These firms are not solo practices or PPM “factories” that suffer from time, quality, and bandwidth issues that can render the protection provided by a PPM and well-structured offering useless. Each offering commissioned through our company is staffed with two or more attorneys to ensure clarity and quality.

• Most Competitive Fee Structure: We understand that cost control is particularly important at any stage. Regulation D offerings commissioned through our company are priced using extremely competitive fixed rate structures. In fact many of our offerings have been achieved at approximately $5,000 in flat non-hourly fees.

• Custom Work Product: Our company is not a PPM mill and our affiliated lawyers do not cut copy/paste templates. Rather, each offering is tailored to reflect a strong understanding of your specific business need and features. We encourage you to setup a free consultation to better understand our process and our value proposition.

• Experience with Securities Fraud Issues that can Plague your Company: Our affiliated attorneys have counseled companies through their corporate and investor relations issues for a combined 30 years. As a result, they have experience with all the “things that can go wrong” in a private placement offering, especially allegations of fraud and investor control issues. This experience has taught them that the PPM is the first target for lawyers and the government to impose liability and sanctions on the principals of the offering company. Hence they understand to prevent liability with a private placement memorandum, an ounce of prevention is worth a pound of cure. As a result, offerings commissioned through our company are driven by a deep attention to detail.

• Marketing Support and Consulting: Any private placement offering should be generated with a robust understanding of the optimal strategy to market that offering based on a solid sensitivity to the investor audience. Moreover, while a PPM is the heart of a private offering, there are many other considerations and decision points that require a skilled and experienced hand. In particular, the actual structure of the offering (as a small sample: debt versus equity, waterfall mechanics, pro formas, conversion mechanics, investor rights, etc.) is not something that should be randomly chosen. Our services include pre and post offering support in order to maximize investor viability.