VC GLOSSARY

An offering memorandum is a legal document that protects investors in a private placement deal.

It states the objectives, risks, terms, and conditions of the investment opportunity and explains what investors will gain. It can also be called a private placement memorandum, an offering memo, or an OM.

You could think of an offering memorandum as a detailed business plan. It’s normally put together by an investment banker on behalf of the business owners. In many ways, it’s similar to a prospectus — but it’s used for private business, whereas a prospectus is used for publicly traded companies that are offering shares.

You can use an offer memorandum template to create a straightforward offering memorandum document. Make sure you use an offering memorandum template that’s designed for investing in companies rather than in real estate.

Normally, an offering memorandum template should have sections for:

• Important notices
• Regulation D disclaimers
• Summary of the offering
• Company and management information
• Terms of the offering
• Plan of distribution
• Use of proceeds
• Capitalization statement
• Discussion and analysis of financial condition
• Risk factors
• How to invest and investor suitability requirements
• Forward-looking financial forecasts
• Legal Information

There may be additional sections too. The offering memorandum needs to be honest and objective about the business. For instance, it should include in-depth information about the company’s current and projected financial situations.

The offering memorandum will normally be presented as a straightforward document, such as a Microsoft Word document, divided into sections and paragraphs. It may include tables of information, particularly financial information.

An offering memorandum gives investors everything they need to make an informed decision about whether or not to invest in a company.

The company can be protected from liability through the offering memorandum, as it proves that the investor was fully informed about the risks of the investment.

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