Private Placement
Candlefocus EditorThe private offering process typically involves placement agents, lawyers and accountants who help the issuing company to craft the offering document, identify prospective investors and complete the process. Private placement investors are typically sophisticated long-term investors who are willing to commit funds for a long-term investment. A common type of private placement is one in which the investors are provided with restricted stock, which imposes certain restrictions on the investor’s ability to dispose of the stock.
Private placements are conducted in accordance with the applicable Securities and Exchange Commission (SEC) regulations. SEC rules allow private placements to be offered without having to register the offering document. This significantly reduces the regulatory burden and cost of offering securities. At the same time, investors in private placements must still be given full disclosure of the terms and conditions of the offering, including information about the company’s financial condition and the risks associated with the investment.
Private placements are often attractive because they offer investors a way to get in on the ground floor of potentially high-growth companies. Since securities offered through private placements are not registered and therefore not tradable on public markets, those who purchase private placements must generally hold onto their investments until the securities are registered or an exit strategy is available. Aside from the liquidity risk inherent in unregistered securities, private placements also typically involve much less disclosure than securities registered with the SEC.
In recent years, private placements have become increasingly popular as a means of raising capital for companies, especially in the technology startup industry. Companies that pursue private placements tend to focus on getting the money they need to grow and delay or forgo an IPO, as the regulatory requirements can be more time consuming and costly. For investors, private placements offer access to potentially high-growth companies and securities that are not available to the public.