How to Write a Prospectus

How to Write a Prospectus

Keeping the offering prospectus narrative flowing smoothly

Prospectus Writing

Here at, we often compare the writing of a prospectus – or any document handed to investors, including a business plan – to a river. Your prospectus should continuously flow and hopefully at a smooth pace. Investors would not be bored or turned off by your writing, your structure and your style. When writing any corporate document that is to be given for investment consideration, put yourself in the shoes of the audience that will be considering the investment. Does your prospectus make sense? Is there an underlying message? Or is the offering document taking one all over the place instead of flowing naturally? These questions – and if not adequately addressed – can literally sink your chances at raising money. Our staff have been involved in literally thousands of prospectus and offering memorandum writing projects. We strive to grab the investor’s attention from the onset of the document. Our team will ensure that your prospectus offering is drafted with structure and style.

The Ten Rules for Prospectus Writing

1. Identify Your Investors

While you may be asking why the investors come as number one, and what does that have to do with writing a prospectus, the answer is everything. You are writing the prospectus for your specific audience. You must have them in mind when you begin the writing. If you’re product or service relates to baseball, you do not want to write the prospectus from the standpoint that your investors are interested in space technology. Your investors are interested in baseball and generally sports. Thus, before you begin to write you must identify your investor target market.

2. Profit Generation

The entire point of a business and for those seeking to raise capital is to make a return, i.e. to make money. Your prospectus, from the cover page, should convey a message that you can generate a profit for your investors. It is obvious that any business plan or prospectus shows that the company can turn a profit, otherwise who would invest in a company that shows it will not make money. From the outset of the prospectus, you will need to convey that you can (honestly) generate a return on investment. Services or products that may generate small amounts of revenue may be viewed as a hindrance to others that grenade much more. Focus on the core, money making products and services and your prospectus will be that much stronger.

3. Simplicity

In addition to showing you can turn a profit, you will want to keep your prospectus, no matter the length, flowing. In most cases the simpler the prospectus the easier it is to convey your message. By simpler we mean staying on message, avoiding tangential, non-essential details and clearly explaining the product and services, and the market and the risk factors in a straight forward fashion. A good bulk of investors who will review your prospectus will jump from one section to another, often skipping information to look at section he/she finds more important. Because of this you will want to create a prospectus that is easy too ready and from the first paragraph of any section convey the general idea of the subsequent information. You will need to factor in your analysis that an investor’s attention may only be grabbed in the first few lines of any section and it is therefore imperative that you grab their attention immediately.

4. Market

A well written prospectus will detail the current and potential future market conditions of your products or services. Many underestimate the importance of the overall market and potential market when writing a prospectus or private placement memorandum or another offering memorandum document. Investors want to see the currently market, and if the company will be sustainable in a future potential market. The longevity of any business depends on the market size, the market reception to your service offerings and the future growth or decline of your industry.

5. Scalability

Prominently displayed and easily accessible in the prospectus should be the scalability of the company of its products and services. One of the single greatest considerations investors give to any investment decision is the ability of the company to scale up. A good part of the capability for scaling will be conducive to market conditions, however a good team that can navigate rough waters or a down economy will be a greater factor to scale than the market conditions. The prospectus or any offering document needs to show how the company can scale based on the current and future market, as well as the evolution of its products and services.

6. Team

One of the most important sections of any prospectus is the management team and by extension who is running the company. The management section of the prospectus will show the biographies of the key management of the company, including the CEO and others. It will be important to highlight the experience and qualifications the management team has to manage both the incoming funding (hopefully) while executing the business model. In additional to the management team, the prospectus will also show several other outside entities that assist the company. For example, depending on the type of structure and the type of offering (equity versus debt), the legal team will be noted, as well as the underwriter(s), or the fund administrator or fund manager, the paying agent of the company and numerous others.

7. Risks

The risk factor section of the prospectus should highlight the relevant and potential risks of the company. Anything that is a threat to the company’s business model should be explicated in this section. For example, an oil and gas exploration company may have specific risks such as drilling and finding no oil, or machinery decline, or no buyer for its supplies and so on. These are risks related to the industry. On a more global scale a recession could impact oil prices and the bottom line profits of the company. On a more general scale, natural disasters could delay exploration and therefore the selling of product. There are many more such risks associated with an oil company and for any business this is true as well. You will not want to omit risks with the hopefully intent that intent that investor will not be turned off if they learned about them. On the contrary, withholding risks can be a criminal offense and/derail your business goals.

8. Funding Requirements

The funding requirements section of the prospectus will show where you intend to allocate the funds you raise. It is a glorified use of proceeds area that will detail how the money will be spent. For example, if your company is in the oil and gas exploration field and you are raising $10 million, you might show that $5 million will go to purchase equipment, $2 million for refining the oil, $1 million for leasing the land to drill, $1 million for salaries and $1 million for working capital. The idea is that you will show what you need the money for and detail the expenditures. In addition, you are required to allocate the funds raised that you specify in the prospectus to the area it is intended for. If you wish to change where you allocate the funds you may need to get board and investor approval beforehand. Lastly, you will want to discuss the potential for future capital raising initiatives in this section. If you intend to raise additional funds you may want to state why you would need to and for what purpose.

9. Financials

The financial section of the prospectus deals with the past, present and future proceeds of the company. The company will show an up to date balance sheet with a profit and loss statement, as well as any proforma statements about future revenue and expenses. In addition, depending on the type of entity and if the company is private or public, and within each of these there are different rules, the financial statements may need to be audited, or have utilize an exemption from audited financials. The financial section is a good place to show how fiscally responsible you are up until this point (hopefully) and it should be highlighted the fiscal responsible you have achieved.

10. Exit

The exit strategy section of the prospectus is probably the most significant section of the offering document. Any investor wants to see their exit, i.e. how are they making their initial investment back (and when) and if so along with a profit. For an IPO the public offering itself is an exit. For private companies the exit normally transpires when a company is bought, but in most cases the company’s owners cannot just sell their own stake to a larger audience. The IPO allows for a larger buying pool, or a more liquid audience, as opposed to an illiquid company. The ability to exit investors is probably the single more important factor any investor contemplates before giving out capital.


Writing a prospectus is an opportunity to show investors three important points. Keep this in mind when write your offering memorandum or prospectus as these three questions, and the ten rules above, can act as a map”

  1. What are you doing and why is this needed?
  2. How much capital do you need, i.e. where will be it be spent?
  3. When will I see my investment back and with a profit?

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