Private placements are generally considered a cost-effective way for small businesses to raise capital without “going public” through an initial public offering (IPO).
As privately-negotiated transactions, private placements may be designed to meet specific needs, and can involve debt, equity, or a combination of the two. As such, the private placement market includes a wide array of corporate finance transactions, including senior and subordinated debt, asset-backed securities, and equity issues.
There are at least three groups of investors with an interest in private placements:
- People who are familiar the company, and/or are involved with the company in some way, as in a vendor relationship, for example
- Investors interested in purchasing shares of companies as a means of participating in their growth and the price increase that accompanies companies as they approach a public offering
- Venture capitalists
Whatever the source, the key to identifying the right source is to ensure they have the same outlook for the company’s growth, development, and eventual exit strategy. Private placements are presented to potential investors in the form of a private placement memorandum (PPM), which is similar to a full business plan tailored to disclose the circumstances of the company and reasons for the offering, and with the necessary disclaimers for the securities being offered, confidentiality, and accuracy of projections.
Since the investors are likely to be sophisticated business people, it may be possible for the company to structure more complex and confidential transactions. If the investors are themselves entrepreneurs, they may be able to offer valuable assistance to the company’s management.
If you are just starting out on the road to seek private placement investment, you need to allow time in terms of preparation and accessing investors and you may need to pitch on several occasions before finding interest from investors. If you have immediate needs for finance, it is unlikely that equity finance is appropriate. As a guide, a minimum of eight weeks is needed from reaching agreement in principle to conclude all the due diligence and investment procedures, but this can vary tremendously according to the complexity of the deal and the degree of alignment between the investor(s) and the business. It is worth bearing in mind that it can take considerable time to reach an agreement in principle. From the first contact with interested investors to final investment, you could take three to six months.
At Azione, we can help you to find appropriate investors for your project. If you can convince us that your project is worthy of receiving a private placement, we can give you the opportunity to present your project to be visible to our network of investors. We only select companies that we feel have the best chance of raising finance.
If however, we think your proposition has real potential for receiving private placement funding but you are not quite at the investment level yet, we will try to recommend someone from our extensive list of contacts that will be able to assist you to reach the investment readiness stage.
If on the other hand you are selected by Azione, we will invite you to put together a presentation which will be sent to every investor for consideration. We will offer you some tips and guidance for the presentation and only present it to our investors when we are sure that it meets their requirements.
Our investors are all accredited high net worth individuals or sophisticated investors, with an interest in investing in start-up companies.