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A private placement is the sale of securities directly to a select group of investors without registering the offering with the Securities and Exchange Commission. The issuer relies on exemptions from registration under the Securities Act of 1933, most commonly Regulation D. Private placements allow companies to raise capital faster and with fewer public disclosure requirements than a registered public offering, in exchange for restrictions on who can buy and how the securities can be resold.
Think of a private placement as raising money through a private invitation rather than opening a store to the general public.
Most private placements in the United States are conducted under Regulation D, which provides safe harbors from registration. Three rules govern most activity.
Regulation D restricts most private placements to accredited investors, individuals and entities that the Securities and Exchange Commission considers financially sophisticated enough to protect themselves without the disclosures that public offerings require.
An individual qualifies as an accredited investor if they earned more than $200,000 individually, or $300,000 jointly with a spouse, in each of the two prior years and expect to meet that threshold in the current year. They also qualify if their individual or joint net worth exceeds $1 million, excluding the value of their primary residence. In 2020, the Securities and Exchange Commission expanded the definition to include holders of certain professional licenses such as Series 7, Series 65, and Series 82 certifications, regardless of income or net worth.
Virtually any type of security can be sold in a private placement. Common instruments include common stock, preferred stock, limited partnership interests, membership interests in limited liability companies, convertible notes, and promissory notes. Hedge funds, private equity funds, real estate funds, and startup companies all rely heavily on private placements to raise capital from institutional investors and high-net-worth individuals.
Instead of a prospectus filed with the Securities and Exchange Commission, a private placement is typically documented through a private placement memorandum. This document describes the investment opportunity, use of proceeds, risk factors, management team, financial statements, and subscription terms. While Regulation D does not require a private placement memorandum for offerings to accredited investors only, failure to disclose material information still exposes the issuer to securities fraud liability. Sophisticated issuers always prepare one.
Securities sold in private placements are restricted securities. They cannot be freely resold in the public market for at least six months, or in some cases one year, unless the holder qualifies for an exemption. This illiquidity is the primary tradeoff that investors accept in exchange for the potential opportunity to invest in companies before they become publicly traded.
With deep roots in traditional finance and the digital asset industry, Acquire.Fi operates as a specialist M&A advisory firm. Coverage spans M&A, secondaries, OTC, and capital markets advisory across digital assets and frontier tech. Our team has decades of combined experience across every stage of the deal lifecycle.
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