Private placement (or non-public offering) is a

funding round A securities offering (or funding round or investment round) is a discrete round of investment, by which a business or other enterprise raises money to fund operations, expansion, a capital project, an acquisition, or some other business purpose. ...

securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...

which are sold not through a

public offering A public offering is the offering of securities of a company or a similar corporation to the public. Generally, the securities are to be listed on a stock exchange. In most jurisdictions, a public offering requires the issuing company to publish a ...

, but rather through a private offering, mostly to a small number of chosen

investor An investor is a person who allocates financial capital with the expectation of a future return (profit) or to gain an advantage (interest). Through this allocated capital most of the time the investor purchases some species of property. Typ ...

s. Generally, these investors include friends and family, accredited investors, and institutional investors.

PIPE Pipe(s), PIPE(S) or piping may refer to: Objects * Pipe (fluid conveyance), a hollow cylinder following certain dimension rules ** Piping, the use of pipes in industry * Smoking pipe ** Tobacco pipe * Half-pipe and quarter pipe, semi-circul ...

(Private Investment in Public Equity) deals are one type of private placement. SEDA (Standby Equity Distribution Agreement) is also a form of private placement. They are considered to present lower transaction costs for the issuer than public offerings. Since private placements are not offered to the general public, they are prospectus exempt. Instead, they are issued through

Offering Memorandum An offering memorandum (OM) or offering circular (OC) is a type of prospectus (finance) for a bond or other security. Sometimes, this is also referred to as a prospectus, offering memorandum, or short OC. The terms "offering memorandum", "OM", or " ...

. Private placements come with a great deal of administration and have normally been sold through financial institutions such as investment banks. New

FinTech Fintech, a portmanteau of "financial technology", refers to firms using new technology to compete with traditional financial methods in the delivery of financial services. Artificial intelligence, blockchain, cloud computing, and big data are ...

companies now offer an automated, online process making it easier to reach potential investors and reduce the administration.

In the United States

Although these placements are subject to the

Securities Act of 1933 The Securities Act of 1933, also known as the 1933 Act, the Securities Act, the Truth in Securities Act, the Federal Securities Act, and the '33 Act, was enacted by the United States Congress on May 27, 1933, during the Great Depression and after ...

, the securities offered do not have to be registered with the

Securities and Exchange Commission The U.S. Securities and Exchange Commission (SEC) is an independent agencies of the United States government, independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary pu ...

if the issuance of the securities conforms to an exemption from registrations as set forth in the

and the associated SEC rules put into effect. Most private placements are offered under the Rules known as Regulation D. Different rules under Regulation D provide stipulations for offering a Private Placement, such as required financial criteria for investors or solicitation allowances. Private placements may typically consist of offers of

common stock Common stock is a form of corporate equity ownership, a type of security. The terms voting share and ordinary share are also used frequently outside of the United States. They are known as equity shares or ordinary shares in the UK and other Co ...

or preferred stock or other forms of membership interests, warrants or promissory notes (including convertible promissory notes), bonds, and purchasers are often

institutional investor An institutional investor is an entity which pools money to purchase securities, real property, and other investment assets or originate loans. Institutional investors include commercial banks, central banks, credit unions, government-linked ...

s such as

bank A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. Because ...

insurance companies Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...

pension fund A pension fund, also known as a superannuation fund in some countries, is any plan, fund, or scheme which provides retirement income. Pension funds typically have large amounts of money to invest and are the major investors in listed and priva ...

s. Common exemptions from the

allow an unlimited number of

accredited investor An accredited or sophisticated investor is an investor with a special status under financial regulation laws. The definition of an accredited investor (if any), and the consequences of being classified as such, vary between countries. Generally, acc ...

s to purchase securities in an offering. Generally, accredited investors are those with a net worth in excess of $1 million or annual income exceeding $200,000 or $300,000 combined with a spouse. Under these exemptions, no more than 35 non-accredited investors may participate in a private placement. In most cases, all investors must have sufficient financial knowledge and experience to be capable of evaluating the risks and merits of investing in a company.

Rankings

Thomson Reuters provides annual and semiannual rankings of private placement agencies by capital raised.

References

External links

United States Securities and Exchange Commission (SEC)
– Official site {{Corporate finance and investment banking Securities (finance) Investment