- May 14, 2013
- Posted by: John Fischer
- Category: Accredited Investors
Private Placement Memorandums are excellent ways to raise capital and have been growing in popularity as the capital markets have tightened up. Companies that would traditionally go after bank financing have been using PPM’s to secure the capital they need for expansion, reorganization, and to take advantage of market opportunities.
Companies typically use a broker like Merrill Lynch or HSBC to take their private placement out to market. There are, however, a growing number of businesses that don’t want to pay high commissions and are trying it on their own. TerraX Minerals Inc. just completed their initial closing to the tune of $1,357,217. They raised this capital by selling 6,786,085 units at $0.20 per share. Every unit represents one full common share and one half of one warrant purchase warrant. The purchase warrants enable the holder to buy an additional common share for $0.30 until May 8, 2016. All of these shares are under a hold period until September 9, 2013.
Why did TerraX use a non-brokered private placement?
The answer is all in the numbers. To raise over $1.3 million the company only had to pay $21,480 in commissions. In addition they also issued warrants in the place of high finders fees. By issuing the PPM themselves they kept more money in their pocket and had greater flexibility in structuring the deal.
Issuing a non-brokered private placement can be an excellent option if you already have investors in mind. This could be industry players that want to participate in your company’s growth, local investors you know, or people that have previously invested in or lent money to your company. If you already have these people identified paying a broker to solicit them is not cost effective. In the case of TerraX they sold the majority of the units to Virginia Mines Inc. They paid $723,417 for 3,617,085 units in this PPM. They have also agreed to purchase more units of additional private placement memorandums to ensure they remain a 9.9% stake holder in the company. Strategic partnerships, such as this, can be achieved through a closely held PPM. If you are in discussions with other companies that want to invest in your firm, but you aren’t ready for a public offering, this investment vehicle can be the solution.
As an added benefit Accredited Investors can invest in PPM’s and many like to do so. It gives them the opportunity to invest in deals that are off the market and not available to everyone. By investing prior to a public offering, an accredited investor has the opportunity to see greater return on investment. If you are issuing a PPM, or working for a company that is, AccreditedInvestorLeads.tv can provide you with the list of non-brokered private placement investors you need to raise the capital your company is looking for. The large brokerage houses are not the only ones with investor contacts. As a small firm, or independent broker, you can benefit from the increased PPM activity and help raise more money for your clients. TerraX is a perfect example of how smaller, non-brokered, PPM’s can be extremely successful.