Private Placement

Private placements are securities offered by issuers to a select group of potential buyers rather than the open market. Since these securities are not available to the public, they are usually out of the scope of SEC registration and are considered exempt transactions. Although these securities are private, they are still subject to federal securities anti-fraud regulation. In order to qualify for private placement exemption, purchasers of the securities must be sophisticated investors, have access to information normally provided in a prospectus, must be able to bear the investment’s economic risk, and agree not to resell or distribute the securities to the public. Since the placements are private rather than public, the average investor is usually only made aware of the placement after it has occurred.

Venture Capital

Venture capital is a segment of the private equity industry that focuses on investing in new companies with potentially high growth rates. Venture capital firms are an important source of funding for startups that do not have access to capital markets. Venture capital investors provide money to start-up firms and small businesses with perceived long-term growth potential. In return, these investors typically receive equity in the startup and a seat on the company’s board of directors. Venture capital investments are extremely risky but also have the potential for above average returns. Most venture capital comes from a group of wealthy investors, investment banks, and other financial institutions that put together their investments or form partnerships.