what is a private placement 
a private placement is a sale of stock shares or bonds to pre selected investors and institutions rather than publicly on the open market it is an alternative to an initial public offering ipo for a company seeking to raise capital for expansion private placements are regulated by the u s securities and exchange commission under regulation d investors invited to participate in private placement programs include wealthy individual investors banks and other financial institutions mutual funds insurance companies and pension funds one advantage of a private placement is its relatively few regulatory requirements investopedia nono floresunderstanding private placementsprivate placements have become a common way for startups to raise financing particularly those in the internet and financial technology sectors they allow these companies to grow and develop while avoiding the full glare of public scrutiny that accompanies an ipo there are minimal regulatory requirements and standards for a private placement even though like an ipo it involves the sale of securities the sale does not even have to be registered with the u s securities and exchange commission sec the company is not required to provide a prospectus to potential investors and detailed financial information may not be disclosed 1the sale of stock on public exchanges is regulated by the securities act of 1933 among other laws the law was enacted after the market crash of 1929 to ensure that investors receive sufficient disclosure when they purchase securities regulation d of that act provides a registration exemption for private placement offerings 23the same regulation allows an issuer to sell securities to a pre selected group of investors that meet specified requirements instead of a prospectus private placements are sold using a private placement memorandum ppm and cannot be broadly marketed to the general public 2it specifies that only accredited investors may participate these may include individuals or entities such as venture capital firms that qualify under the sec s terms 2advantages and disadvantages of private placementsabove all a young company can remain a private entity avoiding the many regulations and annual disclosure requirements that follow an ipo the light regulation of private placements allows the company to avoid the time and expense of registering with the sec 21that means the process of underwriting is faster and the company gets its funding sooner if the issuer is selling a bond it also avoids the time and expense of obtaining a credit rating from a bond agency a private placement allows the issuer to sell a more complex security to accredited investors who understand the potential risks and rewards the buyer of a private placement bond issue expects a higher rate of interest than can be earned on a publicly traded security because of the additional risk of not obtaining a credit rating a private placement buyer may not buy a bond unless it is secured by specific collateral a private placement stock investor may also demand a higher percentage of ownership in the business or a fixed dividend payment per share of stock this puts pressure on the company to perform at a higher level which could lead it to ignore the careful process of healthy growth additionally there could be a loss of control if private placements result in increased ownership from investors 