Private placement or private investment capital is money invested in a company usually from private investors, usually invested in stocks or bonds or equity ownership of a project. In the United States, private placement often does not need to be registered with the Securities Exchange Commission. Regulation D is the most popular form of non-public private placement.
According to Thompson Financial, over 416 billion was issued in the private placement market for 2002. As good as it sounds, the majority of those dollars came from pension funds, investment pools, banks and insurance companies amounting to just over 2,000 deals. However, private placement does exist for the small business owner and is often less expensive and easier than taking your company public.
Benefits of Private Placement
- High degree of flexibility to the company in amount of financing ranging from 100 thousand to 10-20 million with combinations of debt, equity, or debt and equity capital.
- Investors are more patient than venture capitalists, often seeking 10% to 20% return on investments over a longer term of 5 to 10 years.
- Much lower costs than approaching venture capitalists or selling the stock to the public as an IPO (Initial Public Offering).
- Quicker form of raising money than usual venture capital markets.
The Ideal Candidate for Private Stock Offerings
The ideal small business candidate is a company in the third stage of finance and is looking for growth or expansion funding. Small business owners might think private placement applies to start-ups when your company has completed product development, conducted a market-feasibility study and business planning but start-up funding often comes from angel investors.
Who Can Invest In Private Placements?
The money from private placements will come from accredited investors defined by the SEC Rule 501 under Regulation D as:
an individual earning 200k per year.
a household with income of $300K per year or having a net worth over $1M.
or venture funds, some banks and other institutions.
With the limited infusion of capital into the stock market, the private investor market is an attractive alternative for investors and small businesses. Private placement offers a viable form of business financing without the constraints of taking a company public and conceding control.
Types of PPMs
Regulation D, Rule 506 Exemption to Accredited Investors
- Reg D, 506 Letter Offering
- Reg D, 505
- Reg D, 504
- 25102N for California only
- Other Reg D Offerings
REGULATION D OFFERINGS
We provide complete documentation for the following:
- Rule 504 Offerings (Raise up to $1,000,000)
- Rule 505 Offerings (Raise up to $5,000,000)
- Rule 506 Offerings (Raise unlimited amounts to accredited & unaccredited investors)
- California §25102(n) (Federal Rule 1001) Offerings (Raise up to $5,000,000)
All information on this page was deemed by the company's attorneys to be correct on the date it was posted, however, regulations change. We recommended you seek individual counsel from your CPA, Investment Professional and/or Attorney
