There are several options to consider when raising capital for your company. Three are Initial Public Offerings (IPO), venture capital, and traditional business loans. While these all have their benefits, they can be slow, requiring longer funding periods and stricter oversight from the SEC.
That’s where Private Placement Investments differ, aiming to be a quicker and more lucrative option for companies and investors.
So What Is a Private Placement Investment?
A private placement investment is an alternative to other forms of fundraising. They involve the direct sale of company shares or bonds to qualified investors. Often these are insurance companies, pension funds, and mutual fund companies.
So what are the benefits of private placement investments?
1. The Process of Obtaining Investors Is Fast, Efficient, and Streamlined
IPOs must register with the Securities and Exchange Commission (SEC). This can result in hefty legal fees and take up a considerable amount of time.
Private placement investments do not need registration with the SEC. Because PPIs have well-informed investors, the SEC is less concerned by an investor’s level of contribution.
The lack of SEC oversight leads to the next reason:
2. Transactions Between Investors and Companies Are Private
Under Regulation D of the SEC, companies have the ability to raise capital without disclosing private financial records each quarter.
Though these transactions are not registered, they are still regulated, allowing businesses to affirm securities depending on the investors purchasing them.
3. The Company Retains Ownership and Control
Without a public offering, the company is not required to give control over to investors or add investors to its board of directors. By limiting outside voices, the company retains control over its creative and financial decisions.
4. Companies Have Access to a Wide Pool of Investors
Private equity, hedge funds, and venture capital funds represent the majority share of PPIs. Crowdfunding has proven to be an accessible means of communicating a product to an audience on a larger scale.
Further, PPIs can be offered to individuals, such as family, friends, or angel investors.
Investors can even invest using a self-directed IRA account, further streamlining the process.
If you’re interested in how to make PPIs or how your company can use this form of fundraising, you can learn more here.
5. Their Investors Gain Benefits
One of the pros of private placement investments is that investors can buy stocks or bonds at a reduced cost. They are also provided extra flexibility over what they can do with their investments.
Given that the funds are not publicly traded, and thus cannot be easily sold, investors often demand a higher rate of return due to the increased risk.
A Competitive Alternative for Investors and Companies
Private placement investments are great for both companies and investors. They provide for a fast, flexible way to raise equity while offering basic assurances and a sense of intimacy to their investors.
If this was helpful and you want to learn more about investments, check out our other blog posts below.