A private placement is a sale of securities, usually to a limited number of qualified investors.
If a company wants to raise money, but doesn't want to do so by selling shares on the public markets, it can more quietly sell securities (stocks, bonds, or other financial instruments) to a select group of buyers. Although private placements do not have to be registered with the Securities and Exchange Commission, they are governed by federal rules under something called Regulation D. This regulation contains the exemptions that allow private placements and also sets out rules for the money-raising offerings. The monetary amount of the offering or the number of buyers might be capped, or those participating might be limited to investors who are considered financially savvy enough to understand the risks and wealthy enough to withstand a big loss.
A private placement offering memorandum will lay out the company's pitch to investors. It doesn't have to be as detailed as a prospectus submitted for review by potential public buyers, but it must provide necessary information and cannot be misleading. The companies doing the offering and the parties either investing or loaning money are often brought together by a third-party financial professional. Those investing via private placements often are large entities such as banks, mutual funds, or insurance companies.
Companies making private offerings sometimes find this to be a quicker or easier way to raise large amounts of money.
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