A private placement is a sale of shares or bonds to selected investors and institutions, not on the open market. This is an alternative to an IPO for a company looking to raise capital for expansion. Private placement transactions in the United States are covered by exceptions under the Securities Act of 1933. Offers are not subject to registration by the U.S. Securities and Exchange Commission and borrowers are not required to issue a prospectus or comply with extensive advertising obligations for public offerings. They are only open to accredited investors or other demanding investors, who generally include insurance, pension funds, hedge funds and high net worth individuals. Private placement buyers demand higher returns than they can get in open markets. European borrowers should seek external legal advice to ensure that private placement documents do not deviate from market practice and correspond to their existing lending facilities. There are minimum regulatory requirements and standards for a private placement, although it is the sale of securities, as in the case of an IPO. The sale should not even be registered with the U.S. Securities and Exchange Commission (SEC). The entity is not required to provide a prospectus to potential investors and detailed financial information should not be disclosed. Private or private Stock Offerings are “private” equity/debt transactions and are much less expensive than an IPO such as an IPO (for capital raising purposes).
In March 2019, Lightspeed Systems, an Austin-based company that develops content monitoring and monitoring software for K-12 educational institutions, raised an unmentioned amount of money during a financing cycle for the D private placement series. The funds should be used for business development. One advantage of a private placement is the relatively low regulatory requirements. A private equity investor may also enter into a larger shareholding or demand a fixed dividend payment per share.