Skip to content

Private Placement

We can assist with your private placement offering.

The Need for Capital and Private Placements

Businesses of all size regularly require infusions of capital in order to break into the next plateau, penetrate new markets or to sustain overall growth. While there is a multitude of financing sources available to these business owners, each source has its own inherent limitations, requirements and benefits.

Dealing with commercial banks in a traditional lending scenario can be ideal for established companies with a proven track record of profitability. However, growing businesses do not have this same option do to the fact that they may not meet the strict requirements of most contemporary lending institutions. Although less seasoned than their established contemporaries, these up-and-coming companies still possess merit and credibility and fortunately, have practical options for financing. Private Placements are an attractive alternative for growing companies for a variety of reasons.

What is a Private Placement?

A Private Placement is private investment capital invested in a company, usually from individual investors in the form of stock and sometimes bonds. In the United States, Private Placements do not need to be registered with the Securities Exchange Commission. Regulation D and Rule 4(2) of the Securities Act of 1933 are the most popular forms of non-public private placements. The process can also be referred to as a Private Stock Offering as well.

Larger corporations can reap the benefits as well because Private Placements are far less expensive and time consuming than public offerings. Because there are so many options for undertaking corporate financing it is essential that corporate officers carefully review their entire financial picture before embarking on a capital raise or a stock offering of any kind. In a brief overview though, Private Placements offer a viable form of business financing without the constraints of taking a company public and conceding control.

Private Placement Benefits

Private Placements have a high degree of flexibility in regard to the amount of money that can be raised. Private Placements can range in size from less than $50,000 to upwards of $50 million. Private Placements come in a variety of forms and may consist of debt, equity or a combination of debt and equity financing.

In addition to the more favorable return on investment, the Private Placement itself can be substantially faster and less expensive than seeking the assistance of a venture capitalist or selling the stock to the public in the form of an Initial Public Offering or IPO.

What Businesses Qualify for a Private Placement?

A prime Private Placement candidate is a small business in its third stage of financing seeking enhancement of their existing capitalization for growth or expansion. Private Placements are also perfect for start-up companies that are in the process of product development but have already conducted market-feasibility studies and have established solid business planning.

Although infinite types of businesses can benefit from Private Placement financing, some specific examples include:

  • Restaurant chains seeking to open additional locations
  • Bio-tech companies seeking to transform its research into product sales
  • Real estate developers seeking financing for a particular project
  • Franchise operators seeking to add additional locations
  • Inventors seeking to turn an invention into product sales
  • Professional service providers such as nursing staffing or executive placement agency seeking to expand into additional markets
  • Retail chains seeking to expand product lines or locations
  • Auto dealerships seeking to add inventory or additional locations
  • Public companies seeking a cash infusion without the necessity of completing a secondary offering
  • Medical providers seeking to franchise their services
  • Raw material excavators such as minerals
  • Any company seeking to laterally expand by conducting its own manufacturing, packaging or distribution
  • Pharmaceutical or research companies seeking to further research and development
  • Private companies seeking financing to allow them to proceed with future financing such as bridge loans
  • Clothing designers seeking to expand their product line; manufacture and market products
  • Any company that has reached a growth plateau and desires to expand into additional markets
  • Real estate investment groups
  • Recording studios or producers seeking funding for a particular artist
  • Movie studios or entertainment producers seeking funding for film production
  • Communications providers intending to add cellular towers, satellite feeds or cable wiring
  • Product licensing firms seeking to add additional licenses to its stable
  • Internet or tech companies desiring to grow and develop
  • Hard product distributors such as vitamins and supplement companies

PIPE Financing

Private Placements also add an inexpensive capital raise alternative to existing public companies looking for a cash infusion. Private Placements into a public company are known as PIPE transactions. Usually PIPE transactions involve a singe or very small group of investors. In the normal PIPE transaction, the company agrees to register the privately purchased stock for public resale providing the investor with an upfront exist strategy. In the event that the Company does not register the stock, the PIPE investor can re-sell the stock after a one year holding period under certain circumstances, and after a two year holding period in all circumstances in which the investor is not an affiliate of the public company.

In both the Private Placement and the PIPE scenarios, the ideal investor is rather specific in nature and is sometimes referred to as an "Angel Investor" due to the fact that they are indeed saviors in the Private Placement arena.

Who are Private Placement Investors?

With the latest occurrences of accounting fraud in the stock market, the private investment market is an attractive alternative for investors and small businesses. It also allows investors to get involved in a company on the "ground floor" in many cases. A Private Placement investor has the opportunity to keep a closer eye on their investment, than a public market investor, and has the opportunity to reap large financial benefits by getting in on the ground floor of what could be a hugely successful company.

In rare instances a single Angel Investor or small group may fund an entire private offering. In this particular scenario though, the Angels may dictate various terms of the offering and require that the company make modifications to its initial compensation plan. Like all good business transactions though, as long as all parties benefit, everyone comes away satisfied.

The aforementioned Angel Investors are just a small part of the equation. The money to fund Private Placements invariably comes from accredited investors as 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.
  • Various venture capital or hedge funds, small banks and other financial institutions such as insurance companies, pension funds and hedge funds.

Regulation D Offerings

Regulation D promulgated under the Securities Act of 1933 sets forth rules governing three (3) types of Private Placement offerings commonly known as a 504, 505 and 506 offering. Growth companies must be able to offer and accommodate fractional investments from individual investors. Nothing can accomplish this more effectively than the structure and framework of a Regulation D Offering. These offerings are the most concise mechanism currently available for receiving fractional capital investments; the appropriate documentation for receipt of those investments; and, a tool for leveraging securities brokers as a resource for capital funding. Regulation D Offerings are highly versatile and have proven successful for a wide variety of transaction and industry types: corporate seed capital; corporate expansion capital; film production capital; real estate equity funding; acquisitions; capitalization for early to pre-IPO stage Internet and technology companies; expansion funding for retail companies; and, product development and distribution funding.

What is Required to Initiate a Private Placement?

  • A thorough business plan
  • A Private Placement memorandum (PPM) that fully discloses all the pertinent facts of the investment and business
  • Potential investors or a placement agent to locate potential investors;
  • Most importantly, a law firm or lawyer experienced in Private Placements and the creation of Private Placement Memorandums.

Section 5 of the 1933 Act states that "it is unlawful for any person, directly or indirectly to sell a security unless a registration statement has been filed, or to sell a security or deliver a security after the sale unless a registration statement is in effect." Sections 3 and 4 of the Act contain exemptions to this all encompassing rule, which exemptions include the private placement.

There are many rules and regulations in conducting a Private Placement which require the advice and guidance of experienced securities counsel. A Private Placement offering is not exempt from the fraud provisions of the Act and requires careful compliance with the relied upon exemption. The rules prohibit general solicitation or advertising; limit the number of non-accredited investors; they require that that specific disclosures be made to the participating investors; and they place responsibility on the company and its placement agents to verify that the investors solicited and accepted are qualified to participate.

Moreover, the registration provisions of the Securities Exchange Act of 1934 provide that it is illegal for a Company to pay commissions to an individual or entity unless the individual or entity is a licensed securities broker or bona fide employee of the issuing Company. In addition, state securities laws ("blue sky laws") must be examined to ensure compliance.

If an issuing company fails to qualify for the Private Placement exemptions relied upon, it can face severe penalties and possible criminal repercussions. In other words, securing competent counsel is the single most important step in conducting a Private Placement offering.

Private Placement Memorandums or PPM's

The key requirement to conduct a Private Placement offering is the Private Placement Memorandum or PPM; the legal document that includes all the disclosures required by law so investors can make an informed decision as to the risk-reward scenario before taking part in a private offering. The Private Placement Memorandum protects the company as well as the investor by making perfectly clear that such transactions are speculative in nature and should only be undertaken by individuals capable of sustaining a loss of investment capital.

The Private Placement Memorandum and accompanying Subscription Agreement guards the company from inadvertent non-compliance and also provides evidence of due diligence in the event of a dispute.

Relationships Mean Everything in Business

By getting to know your company thoroughly, can quickly prepare Private Placement Memorandums and all the essential documents required for a variety of private equity transactions. Over the years the firm has also developed an extensive network of key professionals in the securities industry. These accomplished investment bankers and consultants can provide access to investors as well as perform feasibility studies to discern how well an offering may be received by the investment public. In other cases our consultants will offer advice pertaining to the creation of business plans as well as compensation packages in order to maximize the effectiveness of the offering without "giving away the house" in the process.

Our team can help with your Regulation D private placement offering and memorandum.

Contact Us for a Free Consultation

Contact Us


30 Wall Street
Suite 800
New York, New York 10005


(212) 930 - 0161


[email protected]