The heart of the document is the description of the business. Some practitioners like to draft this section afresh, as if a prospectus were being prepared. The contrary, and I believe the better, view is that the issuer's business plan should be incorporated more or less verbatim into the private placement memorandum by attaching it as an exhibit and/or excerpting passages into a "wrap-around" or "sandwich" memo. The business plan is the meat inside the standard disclosures. The argument in favor of rewriting the business plan in legalese is that the plan may be overly optimistic, and, therefore, should be sanitized before its thrust is incorporated into a disclosure document. The counter argument is that, if the case comes to trial, witnesses for the issuer may spend days on the stand under hostile cross-examination, lamely attempting to explain differences between the document that was produced for investor scrutiny and the one that management used for its own purposes.
The business plan for an early-stage investment opportunity is traditionally drafted by or at the supervision of the founder because there is little room in early-stage financings for investment bankers. If the venture opportunity is mezzanine stage, then investment bankers advising the seller, the investors, or both may review the business plan. In either event, the business plan is the foundation for the private placement memorandum, or "book" as it is often called, and accordingly it deserves comment.
There is a copious amount of material on how to draft business plans that will attract interest in the investment community. Of course, every business is different. The organization of a plan that makes good sense for one enterprise may be wholly inappropriate for another. However, there is a consensus on the key elements that should be discussed if the plan is to compete with others in the capital markets. And, one way to understand those key elements is to examine the table of contents of someone else's plan or, better, a composite of a number of plans. Such a composite is "Composite Table of Contents of Business Plan," prepared by Paul Brountas, one of the most experienced lawyers in the venture-capital business. It is a useful guide against which to check one's own efforts, if only to see what is being left out. The following discussion will not attempt to comment on each item set forth in the composite table. Rather, areas of unusual interest that deserve special attention are highlighted in the following discussion.