• Skip to main content
  • Skip to primary sidebar

Cade Hildreth

Everything You SHOULD'VE Been Taught in School.

MENUMENU
  • Blog
  • Finance
    • Cryptocurrency
    • Real Estate
    • Gold and Silver
    • Investing
    • Increasing Income
    • Financial Q&A
  • Real Estate
  • Health
    • Fitness
    • Nutrition
    • Confidence
  • LGBTQ+
  • Podcast
    • "What You Should've Been Taught"
    • Audio Feed of the Website
    • Ask a Podcast Question
  • About
    • Testimonials
    • About Cade
    • Rugby Bio
    • Instagram
    • Contact
You are here: Home / Finance / What Is a Private Placement? A Quick Guide to a Big Investment
What Is a Private Placement? A Quick Guide to a Big Investment

What Is a Private Placement? A Quick Guide to a Big Investment

September 18, 2020 By Cade Hildreth Leave a Comment

If you’re interested in diversifying your portfolio and moving away from basic bonds and stocks, you’re in the right place.

Have you heard of private placement? Put simply, a private placement is the direct sale of company shares (stock) or bonds (loans with interest payouts) to qualified investors. It is a less-common alternative to an initial public offering (IPO), in which a company goes public on a stock exchange to order to sell it shares to the public.

In this article, I will cover the private placement in-depth, to help you determine if its something you’d like to invest in.

I also explain the importance of private placement memorandums. These are the financial documents that are prepared in order to facilitate the financial terms and conditions of a private placement.

What Is a Private Placement?

As mentioned earlier, a private placement is a strategic alternative to the initial public offering (IPO).

When a company decides to do a private placement in order to sell shares of its stock to private investors, it will frequently approach institutional, wealthy, or experienced investors. Examples of institutional investors include but are not limited to:

  • banks
  • mutual funds
  • insurance companies
  • pension funds
  • venture capitalists

In addition to the prior mentioned entities, private placements can be offered to people like you and me, such as:

  • friends
  • family members
  • wealthy (accredited) investors
  • angel investors (this includes well-known people like Tim Ferriss, Tony Robbins, etc.)

When it comes to the private placement, there are minimal regulatory standards, even though it involves the transaction of securities. Oddly enough, the sale does not even have to be processed by the U.S Securities & Exchange Commission (SEC).

The transaction of stock in public exchange is regulated by the Act of Securities of 1933, which was developed after a market crash to ensure that investors had sufficient disclosure about their purchases. The D regulation of that act supplies an exemption for the private placement memorandum.

The regulation allows the issuer to transact securities to pre-determined groups of investors who meet the requirements set out by them. Instead of the prospectus, private placements are transacted via a memorandum, and cannot be marketed to the broader public.

It only applies to accredited investors (individuals with earned income exceeding $200,000, investors with a net worth of over $1 million; other exceptions apply), which might include but are not limited to individuals or entities who qualify under SEC terms.

When Is the Private Placement memorandum (PPM) Used?

Let’s take real estate, for example. In real estate, a Private Placement Memorandum (PPM) is a legal document that gets provided to prospective investors involved the private placement deal. It explains the terms of the deal, including its risks and projected returns.

A PPM can be used when the business is privately selling securities (financial instruments) related to real estate. Examples of this include:

  1. Syndication pooling
  2. Crowdfunding
  3. Private real estate investment trust
  4. Real estate investment fund

PPMs are not always required in a private offering. For instance, a crowdfunding deal that is sold via the Rule 506(c) in the Securities Act is not required to provide a PPM or any disclosure for that matter.

However, as an investor, you should be very careful when it comes to purchasing securities without a memorandum. While a memorandum may not be required, any information the issuer chooses to provide must be accurate. Thus, there is reduced risk and greater safety associated with receiving an private placement memorandum.

On the flip side of the coin, for people who are selling securities, it’s important to supply a PPM to potential investors. First, most investors will be distrusting of you if don’t. Not to mention, a PPM can help to clarify and prevent misunderstandings that could later result in a lawsuit.

Within your memorandum, you’ll want to disclose all of the investment details, including risks, costs, and payback structures.

Any surprise, whether pleasant or unpleasant, is still a surprise. Investors don’t like unexpected surprises.

Canadian vs US Private Placement

If you’re trying to get a private placement in the New York Stock Exchange or the one in Toronto, the process is quite similar. If you’re an American looking for a Canadian private placement, or a Canadian looking for an American one, the first thing to do is to determine foreign availability.

However, thanks to the political relationship between the USA and Canada. The placements are most often open to citizens of the other country. This holds true for both Canada & the USA.

Another thing to make sure of is the fact that you match the accredited investor criteria in your own country. When it comes to being qualified in each of the countries, the criteria have very minor differences. At the least, you need to meet the criteria for your country, because the other country has forms for foreign investors.

Pros & Cons of Private Placement

In recent years, private placements have become common among startup companies as a way to raise money, particularly those in the financial tech (“fintech”) or software sectors.

A private placement allows these companies to raise substantial amounts of capital—often millions—all while avoiding the public scrutiny that comes with an IPO.

However, private placement buyers also tend to demand higher returns. This is because shares purchased during a private placement can’t be readily sold to others, as can be done on public stock exchanges.

So, what are the pros and cons of private placements?

1. A Quick, Cheap, and Streamlined Process (Advantage)

As an advantage of the private placement, a new company can retain its private structure, while avoiding the regulations and disclosures that come after an IPO.

The minimal standards of private placements allow companies to avoid the expenses and time-consumption of becoming affiliated with the SEC.

This leads to faster underwriting and quicker funding for the enterprise. (*Note: If the issuer sells bonds, it also avoids the inconveniences of credit rating acquisition from agencies.)

In premise, private placement allows the issuer to sell complicated securities to qualified investors who comprehend the scope of the rewards and risks.

2. Investors Will Demand More (Disadvantage)

As a disadvantage, the investors involved within a private placement (PP) deal will nearly always expects higher returns than those that can be secured through publicly traded instruments (stock or bonds).

Because of the risk of not knowing the credit rating, a buyer might not buy into a private placement unless it has been secured with collateral. Collateral is something of physical value that could sold if the loan were to default.

Not to mention, a PP investor will nearly always ask for a larger percentage ownership in the business (per dollar invested) or a larger dividend payout (per share).

Financial Literacy for You

Now that you know what a private placement is and how valuable it can be, you can decide whether you’re interested in moving into higher risk, higher reward investments.

If you’re interested in taking your financial literacy to the next level, then keep exploring the blog or reach out here.

What questions do you have about private placements? Ask them in the comments below.

Join a half million readers who are learning Cade’s secrets, like how to budget, increase income, invest for cash flow, increase confidence, or lose 10 pounds, fast.

Are we connected on social media? Let’s do it so I can share in your world too: Instagram | Twitter | Facebook | Pinterest | Podcast

4.9/5 - (13 votes)

Share this:

  • Click to share on Twitter (Opens in new window)
  • Click to share on Facebook (Opens in new window)
  • Click to share on LinkedIn (Opens in new window)

Filed Under: Finance, Investing

Reader Interactions

Tell Us What You Think! Cancel reply

Primary Sidebar

  • Instagram
  • Twitter
  • Facebook
  • LinkedIn
  • Pinterest
  • TikTok

“As an LGBTQ+ entrepreneur, real estate investor, former USA Rugby Player, and fitness fanatic, I’ll teach you what your parents and teachers should’ve taught you, but didn’t know themselves.” -Cade Hildreth

Want to know what I learned making my first few million? Subscribe here.

Or, listen to Cade’s articles on the go as a Podcast.

Because it’s the New Year, let’s talk about ch Because it’s the New Year, let’s talk about change...

For a long time, I’ve thought about top surgery. I remember when I was 6 or 7 years old when I wanted to run around outside on a hot, sunny day with my shirt off…and I first saw my parents… hesitate. Ughh. 

It wasn’t their fault but I still remember that heart wrenching feeling. To their credit, they ultimately said, “Ok, go do it!” While I did “do it”, I remember the feeling of shame that crept in.

Over the years, being in affirming sporting/rugby circles helped suppress the urge to get top surgery, but it never quite “stayed down.”

So last summer I got keyhole #topsurgery. I’ll talk about recovery in another post because it was definitely weird to not strength train for months.

But in THIS post, I want to share two things:

1. I am SO grateful to my wife Erin for being the supportive and growth oriented partner that she is. 🥰🙏❤️ 

She is now following her call to get a divinity degree and she’s already working in ministry as a Pastor in Training at an incredible, inclusive Presbyterian church here in Virginia. I am grateful to her for supporting me as I become more and more of who I am—and I’m enjoying watching her do the same! Love you, babe!

2. Second, I’m grateful to get to share who I am with my family. This summer we took a trip to Madden’s resort in MN to celebrate my parent’s 50th wedding anniversary. (It was actually their 52nd, because we had to postpone it twice due to Covid.)

I was nervous to be in the pools and lakes around them, but I could feel it was my only choice because I knew I wanted them to “know me”. And, how could that happen if I “hid me”?

Ultimately, I have to tell you…it was freeing to be me, as I am, who I am. 

I had the BEST time splashing around and biking and goofing around with my wife, niece, nephew, & sister. 🌊🏖🐟

So, I suppose, this is a gratitude post to thank those who have supported me over the years as I become more and more of who I am. 

Top of that list is my wife, Erin, but there are countless others. ❤️

If you’re reading this, thank YOU for being one of those people in my life too. I am deeply grateful. 🥹
.
.
#lgbtqfamily #nonbinary
How to set a boundary? 🤔 . . . . #lgbtqia #lgb How to set a boundary? 🤔 
.
.
.
.
#lgbtqia #lgbtqcommunity #emotionalhealth
What do you do if you’re telling a past story ab What do you do if you’re telling a past story about someone who has transitioned? 🤔 Share a 💯 if you agree ➡️🏳️‍⚧️🏳️‍🌈
7 things I got clarity on in 2022: 1. Good and b 7 things I got clarity on in 2022: 

1. Good and bad are labels. All things are experiences. 

2. Maturity is taking full responsibility for oneself. 

3. Having a loving, conscious relationship with myself is a core value. 

4. Emotions do not mean that anything has to be done. 

5. When I am in congruence with what I want, I have it. 

6. I have permission from myself to stop doing anything that doesn’t lead to my peace and empowerment. 

7. Stepping toward emotions and being able to feel them is a superpower. It determines the quality of my life. 

(Are there any above that you’d like me to further explain?)
 
Most importantly, which # above resonates with you? ⬆️

Happy New Year, y’all! 🎊🥳
.
.
.
.

#lgbtqcommunity #lgbtqiaplus #lgbtsupport #nonbinary #trans #selfgrowth
Interview with Jenny Nguyen, Founder of the Sports Interview with Jenny Nguyen, Founder of the Sports Bra—The World's 1st Bar to Only Play Women's Sports - shorturl.at/doGHZ

I'm excited to introduce you to today's #podcast guest, Jenny Nguyen, who is a professional chef, elite athlete, and entrepreneur.

I invited Jenny onto the podcast because she has done something extraordinary that is long overdue: She has opened up a sports bar that exclusively plays women's sports!

Despite extensive research, Jenny hasn't found another sports bar worldwide that ONLY plays women’s sports.

Given that it's nearly 2023, this is mind-blowing. As a lifelong athlete, I find her vision compelling and inspiring.

Aptly called the "The Sports Bra", the venue is putting Jenny's culinary skills on display alongside women's sports worldwide.

The Sports Bar has taken its mission a even further by partnering with and elevating other local, women-owned businesses.

Specifically, it:

1. Sources its grass-fed beef from @CarmanRanch, an ranch run by Cory Carman, a third gen rancher out of Wallowa, Oregon).

2. Sources its alcohol from Freeland Spirits, an all-women owned and operated distillery out of NW Portland.

3. Has furniture built by @girlsbuild_org, a non-profit organization headed by @ktmhughes in Portland, OR, that teaches carpentry and construction skills to young girls as a path to empowerment.

Since opening the Sports Bra this April, people have come from ALL over the U.S. and the world to experience it—including many professional female athletes.

To learn more about Jenny as she makes history, features women's sports, and elevates women-run businesses, listen to the episode here:

shorturl.at/doGHZ

Or, you can check out the Sports Bra at:

@thesportsbrapdx
TheSportsBraPDX.com/

Have you heard of the Sports Bra or been out to experience it in person?

#lgbtqiaplus #womenownedbusiness #lgbgtqia #lgbtqcommunity #womenssports #womeninsport
Over this recent holiday stretch, we… - enjoye Over this recent holiday stretch, we… 

- enjoyed some quiet time at home
- got a sauna delivered (but not yet installed)
- decorated for the holidays
- baked a bunch
- visited our favorite farm
- did some sight seeing
- and perhaps, most importantly, survived the cold snap along with our feather friends (who lived in the garage for a few days so we could heat them with a space heater) 🥶🐔

How have the holidays treated you…and did you get hit by the winter storms? ❤️🎁☃️❄️
Load More... Follow on Instagram

Recent Posts

Gender Spectrum

The Gender Spectrum: A Scientist Explains Why Gender Isn’t Binary

Laith Ashley

Transgender Model Laith Ashley: 11 Fascinating Facts

Real Estate Syndicators

Master List of Real Estate Syndicators for 2023

Pride Flags

Beyond the Rainbow: Your Ultimate Guide to Pride Flags

Nonbinary

What is Nonbinary Gender? On Being Both, Beyond, and In-Between

Categories

  • Biohacking
  • Confidence
  • Cryptocurrency
  • Entrepreneurship
  • Exclude
  • Finance
  • Fitness
  • Gold and Silver
  • Increasing Income
  • Investing
  • LGBTQ+
  • Nutrition
  • Podcast
  • Real Estate

Ask a Podcast Question | Contact Us | Terms of Use | Privacy Policy

COPYRIGHT © 2019 · CADEHILDRETH.COM | PHONE: ‪(202) 660-4705‬  | 800 CORPORATE DRIVE, SUITE 301, STAFFORD, VA 22554, USA

 

*Disclaimer: Nothing on this site should be construed as medical, health, or financial advice. Before making any health decisions, you should consult with your doctor. Before making any financial decisions, you should consult with professional adviser, such as a financial planner or CPA.