What is a PPM and what is it used for?

What does PPM stand for? Why would I need it if I am getting investors.

I am talking to a company now that says I have to spend ~$40K for books (Blue Sky Laws?) before they can go to investors to raise equity for my company ($500K). I need the 101 on where to start.

A PPM is a Private Placement Memorandum.
This should hopefully be helpful: http://wistechnology.com/articles/3935/ Also see a question I asked earlier:
http://www.brightjourney.com/q/raising-money-non-accredited-friends

Mostly you want to carefully read this: http://calacanis.com/2009/10/09/why-startups-shouldnt-have-to-pay-to-pitch-angel-investors/ Then decide for yourself if the offer makes any sense at all. I have my opinion, but I'd prefer that you reach your own conclusion.

As I've said, "if you're using a PPM, you're doing it wrong." http://twitter.com/sachinag/status/6206422241 Sophisticated angel investors don't need PPMs. If you are trying to raise $500K, then a PPM is terrible, especially at $40K. This is one of those things that strongly influences why SV/Boston/NYC is better than other regions; the accredited investors have experience in funding startups.

Think about it: if VCs like Fred Wilson say you only need a 15-20 slide deck to approach them, then why would an individual cutting a much smaller check need more documentation?

First, is the company raising money a broker-dealer? Second, what is the minimum amount of investment per investor? Third, does the company raising the money have access (or a rolodex) of a significant number of high net worth individuals?

The book is necessary because they will be pitching it to high net worth individuals (who will sign a statement saying they have a minimum net worth of $1 million). But these are not typically, professional investors. They're typically just ordinary folks who have amassed a little nest egg and are looking for a "homerun" with some of their funds. The company will not be working for nothing. And the $40,000 quote for the book will be for their time and legal expense to prepare it. Therefore, they will be charging you a fee (in addition to the cost of the book) for their fund-raising efforts. Typically, this will be in the 2.5-10% range. So, you could end up netting less than $440,000 of the $500,000.

Second, if the minimum investment is, say, $25,000, that means that you will have up to 20 investors. It also means that the company may have to talk to more than 200 (about a 10% hit rate is not unusual) to get that. That will a fair amount of time, since each investor has to get the book, read it and then talk to the company rep. And if the minimum investment is lower (which for $500,000 it may be) the odds and timing increase further.

Long and the short of it, is that if this appears to be your only option and the funds are essential right now, you may have no choice. But if not, try to find a better solution (more capital, fewer investors who are professionals)

Hope this helps.

The 40K sounds about right for a $500K you are asking.
It was going to cost me $5K upfront to engage "The Firm" and rest was a factor x% of the money sought - $55k in my case to be paid after the raise.

I was told that the $60K is for working with the entrepreneur to get the details and generate the book.

I have decided not to go this route at this time.

I am seeking help from other entrepreneurs who have done this, and legal advice from my law firm.

Many companies offer PPM's at outrageous rates. For a 500k investment, spending 40k makes no sense at all. PPM's should vary in price from $2500 - $15,000 depending on the amount you are looking for and if it is a regulation D 504, 505, or 506 (the three most popular).