Its not uncommon for company owners to consider an initial public offering, or IPO. This is when a company obtains a listing on a public exchange to allow the general public to buy and sell shares.
Cashflow is an essential requirement in order for a business to be successful. It is quite usual for company owners to raise these funds from family and friends and as the business grows they seek the additional funding requirements from other sources.
But there’s an alternative to the IPO: the private placement.
What Is Private Placement
A private placement is an offering of unregistered securities to private investors. In a private placement, a company sells shares of stock in the company or other interest in the company, such as warrants or bonds, in exchange for cash.
Benefits of Private Placement
- High degree of flexibility in the amount of financing ranging from $100,000 to $10 to $20 million dollars consisting of combinations of debt, equity, or debt and equity capital.
- Investors are more patient than venture capitalists, often seeking 10 percent to 20 percent return on investments over a longer term of 5 to 10 years.
- Much lower costs than approaching venture capitalists or selling the stock to the public as an IPO
- A quicker form of raising money than usual venture capitalist markets