Back Stop

Finance a la Shmoop. What is a prospectus? Well it's just a marketing document,[prospectus book]

selling money and it outlines the basics of the investment, that the money being

raised is actually going for. That is like, what does the business do

for a living? How much revenue has it produced the

last few years? How much profit? How many units of whatever were sold? What did

those units cost the company to produce? Who's running this show and did [list of questions]

they have any felony convictions? Who's on the board? Any lawsuits outstanding

against the company? Yah it's stuff like that. So prospectus, is the set of papers

that covers all of the above and goes out with a new security that's being

offered to buyers and that can be equity and or debt and or both. Prospecti are

generally given for larger financial offerings. That cover more than just

sophisticated investors. For small private offerings, money is raised via a

very simple contract. Usually just a few pages are so. Covering the basics that a [man signing contract]

prospectus we cover and that includes what common industry parlance refers to

as a big boy letter. Meaning that if the investment goes fully bankrupt, that you

by signing here, you represent and warrant that you are a big boy or girl

and that you have the financial sophistication to understand the risks

and you won't cry about things if they turn sour. But small investment which

carries extremely high risk of full failure. [man walking with papers] Yeah those are usually done by

professionals ie the wealthy. So the government doesn't view them as needing

the same kind of training wheels and safety netting that the average Joe Blow

needs when he's making an investment. Prospecti are required in registered

offerings, to protect the average investor, from sleazy wheeler dealers. Who

might not disclose that the wastewater from the company's chemical processing

plant did in fact produce three headed fish downstream. As cool as it is to have[3 headed goldfish]

three headed fish, well three headed people, less cool. So it might be a

problem for that fertilizer producer in the future. That prospectus marketing

document reflects the fact that the company, is you know, prospecting for

money here. And in the process the company has to disclose all the basics

about what it's raising the money for, the good, the bad, and

the three-headed. Yeah glug-glug that's a prospectus. [man in study with scotch]