Business plans are not investment documents. How can you expect an investor to actually invest if you do not even provide them the basic documentation to do so? Following is the documentation that is needed to properly raise capital from investors:
- Private Placement Memorandum: The Private Placement Memorandum, or "PPM", is the document that discloses all pertinent information to the investors about the company, proposed company operations, the transaction structure (whether you are selling equity ownership or raising debt financing from the investors), the terms of the investment (share price, note amounts, maturity dates, etc.), risks the investors may face, etc. Do not confuse the detailed disclosures and transaction structure in a PPM with the general information a business plan provides - they are not the same.
- Subscription Agreement: Don't expect investors to give you capital based on a handshake. Would you invest funds into a company without signing a document that sets forth the terms and conditions of the investment? The Subscription Agreement sets forth these terms and conditions - this is the document the investor signs and gives you with their investment check. You will have a very hard time raising debt or equity capital without this basic document.
- Promissory Note: In debt offerings you need to have a Promissory Note outlining the terms of the loan arrangement with the investors. The note is the actual "loan agreement" between the company and the investor. You can't have a business loan without a loan agreement.
Trying to raise debt or equity capital from any number of investors without these documents is nearly impossible - they are a necessity.
