Sector expertise in PPM

March 17, 2024

by a searcher from EDHEC Business School, Lille and Nice in Charlottetown, PE, Canada

A searcher friend of mine has nearly completed their PPM and will begin fundraising soon.

While the PPM clearly states the fund's industry-agnostic approach, their background in Healthcare Software led them to include an investment thesis and industry overview for that space. However, they of course want to avoid pigeon-holing themselves into Healthcare Software, but have not included any deep dives into other sectors.

Any tips from those who have been through this process (searcher or investor) about displaying one's expertise without sounding too focused on specific sectors? To what extent should the PPM include deep dives on a range of sectors (perhaps those where the searcher has no experience)?

Many thanks in advance for any insight.

0 Likes

19 Replies

153 Views

Replies

Reply by a professional
from American University in Irvine, CA, USA

There is a balance that needs to be remembered in this case. Because the PPM is a company's principal document for offering its securities to investors in a private placement (presumably qualifying to be exempt from SEC registration), and all investors will look to it to try to find items to challenge if their investment experience is not positive, it is critical that all items included in it be true and complete to provide full disclosure of material facts about the company, and its risks. This is especially true of it is given to any person who is not an "accredited investor," as defined in the federal regulations. Because of this, some practitioners feel that the inclusion of information which is NOT related to the issuer of the securities (such a diving into information in a sector where the company is not intending to invest currently or in the foreseeable future) can be materially misleading to prospective investors. On the other hand, if there is a real possibility that a given sector will be a use of proceeds from the sale of the securities, then disclosures about that sector, its trends and risks, is definitely appropriate. Your friend needs to be extremely clear about what he wants to accomplish, and how he wants to do that, and then make certain that his PPM adequately describes anything which a prospective investor would find necessary in making an informed decision whether or not to make an investment in his company. As every deal is different, he should absolutely work with legal counsel to determine what needs to be included (or not) in his PPM. If he would like some help, please feel free to DM me.

Reply by an investor
from McGill University in San Diego, CA, USA

The clearer an entrepreneur can be about their industry preferences, the easier it will be to find investors that are aligned with their vision. In addition to creating alignment with your investor base, there are other advantages to having an industry focus - as you develop expertise in the space, you will have an easier time qualifying prospects, you will be able to have more meaningful conversations with business owners, and you will be able to move more decisively. Remember, just because you have an industry focus, does not mean you should stop looking at brokered deals (in other spaces), explore opportunities in your specific geography, and/or explore opportunities in adjacent spaces.

+17 more replies.

Join the discussion