 PRIVATE PLACEMENT
A private placement is a direct private offering of securities to a limited number of sophisticated investors. It is the opposite of a public offering. Investors in privately placed securities can include private investors, insurance companies, pension funds, mezzanine funds, stock funds and trusts. Securities issued as private placements include debt, equity, and hybrid securities. In the United States, private placements are exempt from public registration under the Securities Act of 1933. The exemption from registration for a private offering is contained in Regulation D of the Securities Act of 1933. While the procedure for conducting a private placement pursuant to the exemption is less stringent than for that of a public restrictions of Regulation D. Those requirements typically require the use of a private placement memorandum, which, for all practical purposes, complies with the requirements of a prospectus which is required in public offerings. The important aspects of the offering are covered: a description of the terms of the offering, the company's business, risk factors, additional terms (i.e., anti dilution protection, registration rights, control features), and summary financial information. The purpose of the summary is to make the offering easy to read and understand. Private placements can only be sold to certain sophisticated investors.
An "equity" offering is where the company sells partial ownership in the company (via the sale of stock or a membership unit) to raise capital. Equity offerings are preferred by early stage companies because there is no set repayment schedule or debt service payments - the investors profit when the company profits.
A "debt" offering is where the company raises debt financing by selling a note instrument to investors with a set annual rate of return and a maturity date that dictates when the funds will be paid back to investors in full. A debt offering functions much like a business loan except instead of a bank providing the financing it is a group of investors lending funds to the company. |
