Private Equity Review
3rd Quarter 2007
Letter from the Editor
This newsletter addresses legal issues relevant to the private equity industry.
In This Issue: The term “private equity” refers to venture capital, project finance, leveraged
buyouts, hedge funds, and other types of investments.
● Letter from the Editor
This newsletter has a focus on venture capital and project finance. Venture
● Fundraising and the and project funds provide development capital in the technology,
Securities Laws entertainment, and energy sectors, among others.
Jeffrey E. Caplan, Esq.
400 Oceangate, Suite 700
Long Beach, California 90802 Fundraising and the Securities Laws
When raising capital from investors, fund managers must comply with a
www.caplan-law.com comprehensive regime of state and federal securities laws. The securities
(562) 216-2614 laws have a broad scope – for example, they apply to offers as well as sales,
and to debt as well as equity.
This article provides an overview of three major requirements: information
disclosure, offering registration, and broker-dealer licensing. The focus is on
Caplan Law is a business law firm private placements, as opposed to public offerings.
with a focus on private equity
transactions. Clients include fund Information Disclosure
managers, placement agents,
project developers, and investors.
Fund managers must accurately disclose all material information to potential
The firm has experience in the investors. The term “material” lacks a precise definition, but standards have
technology, entertainment, and evolved over time.
energy sectors, among others.
The fund personnel should draft a comprehensive Private Placement
Memorandum (PPM) with the assistance of an experienced attorney. A PPM
should address the offering terms, fund structure, fund management, exit
strategies, and other matters. Also include risk factors and legal disclaimers.
Do not include financial projections if they are too speculative.
Distribute the PPM to every investor as early as possible in the fundraising
process. If subsequent changes occur, consider distributing an amended
version of the PPM. The goal is to provide investors with sufficient time to
digest the information.
Keep careful records of all PPM deliveries and significant communications
with investors. If feasible, number each PPM.
All securities offerings in the United States must be registered with the
Securities and Exchange Commission (SEC) and state agencies unless
At the federal level, the exemptions most likely to apply to private equity
funds are Section 4(2) of the Securities Act of 1933, and Rules 504, 505, and
506 of Regulation D (“Reg D”). Additional exemptions may apply. Some of
the exemptions are denied to certain types of issuers.
Section 4(2) exempts issuer transactions “not involving any public offering”.
Although the statute fails to define the term “public offering”, the SEC and
courts typically look for such factors as the absence of public solicitations, a