Private Placement

Private placement (or non-public offering) is a funding round of securities

which are sold not through a public offering, but rather through a private offering,
mostly to a small number of chosen investors
1
. Private placement usually refers to
non-public offering of shares in a public company (since, of course, any offering of
shares in a private company is and can only be a private offering).
For example PIPE (Private Investment in Public Equity), SEDA (Standby
Equity Distribution Agreement) is also a form of private placement. In addition,
Private Placement Program (PPP) introduced in Malaysia. They are often a cheaper
source of capital than a public offering. The benefits of implementing Private
Placement is:
a. High degree of flexibility in amount of financing ranging from 100
thousand to 10-20 million with combinations of debt, equity, or debt and
equity capital.
b. Investors are more patient than venture capitalists, often seeking 10 to
20% return on investments over a longer term of 5 to 10 years.
c. Much lower costs than approaching venture capitalists or selling the stock
to the public as an IPO (Initial Public Offering).
d. Quicker form of raising money than usual venture capital markets.
Moreover the best candidate for Private Stock Offerings was for those have
the ideal small business candidate is a company in the third stage of finance and is
looking for growth or expansion funding. Small business owners might think private
placement applies to start-ups when your company has completed product
development, conducted a market-feasibility study and business planning but start-up
funding often comes from angel investors.



1
Comptroller of the Currency Administrator of National Banks (March 1990). Private placements:
Comptroller's Handbook. US Department of the Treasury. Retrieved 2009-06-13.