Why Write a Prospectus

Why Write a Prospectus?

There are several reasons that standout about the importance of writing a professional investor ready prospectus. The top four that come to mind are; that its professional, legally required, mitigates your legal risks, and supports your message.

Professionalism

First and foremost, the culture of raising capital worldwide mandates that a disclosure type document be handed to investors for his/her decision. Disclosure documents vary from the prospectus to the private placement memorandum to the offering circular as well as the information memorandum to the explanatory memorandum and more. To be taken seriously by sophisticated investors, a prospectus, like a business plan, is simply required. Without such a document it will be difficult to raise any significant sums of money other than from family and friends (who may also require you give them an offering document). A prospectus shows you are serious about taking someone’s money to fund your venture, period.

Legal

Laws relating to the buying and selling of securities, form the private to the public sphere, greatly vary. While some countries may require a private company seeking $1 million to offer investors a legal document or offering document, other counties may not have such a requirement. For public offerings on stock exchanges, however, every exchange mandates the drafting of a prospectus for listing purposes. Therefore, it is a legal requirement for all public companies seeking a listing, and for most private companies worldwide this is the case as well. Therefore, writing a prospectus is good legal practice and smart business sense.

Risks

Taking risks is the logo of an entrepreneur. But needless risks are pointless. To write a prospectus specifically designed for investment capital can shield you from legal liabilities if the company goes bankrupt or loses its market share. The prospectus will have a detailed analysis of the risk factors associated with the company, including risks associated with its products or services, the overall market, competition, and more. By including logical risks to the company (and not omitting them) is the right thing to do so investors can make an educated decision about investing.

Message

A prospectus should convey the company’s strategic plan and mission. Like the business plan, a proper prospectus will act as a guide for the company. The prospectus should highlight the following:

  1. How much capital you are raising and where that capital will be spent;
  2. Detail the company’s product and service offerings;
  3. Discuss the market needs and general industry of your products and services;
  4. Highlight your strategies for market penetration and growth;
  5. Show your team’s strength and how it is well positioned to capitalize in the market;
  6. Discuss the market competition and how they are threats to your business;
  7. Detail your target market, your marketing strategies and your goals;
  8. Discuss the relevant and potential risk factors of your business, your market and your company;
  9. Show your financials projects and revenue models;
  10. Discuss your exit strategies