ShmoopTube

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

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

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

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for a living? How much revenue has it produced the

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

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

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

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

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

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

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

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

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

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

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

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

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and that you have the financial sophistication to understand the risks

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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