Tough economic forecasts or down markets create an unsure market for companies looking to raise capital through an IPO (Initial Public Offering) or secondary public offering. In fact, many companies that register IPO’s have “pulled the plug” until they are certain they can raise the money desired with a good market. Other companies that may have been planning an IPO will postpone plans – sometimes indefinitely – until stability and good market conditions have returned. Unfortunately, this means that companies that are ready to take the next step have to look to other sources for raising the needed capital. The good news is that there are other options available, such as venture capitalism and private placements.
Venture capitalists generally look for fresh, young companies in which to place their money. They invest with the belief that these companies will grow quickly and significantly within the marketplace, also known as “seed investing” or “early stage investing”. Private placements are another option for companies looking to raise capital. This option allows for flexibility by both the investor and the company. Essentially, private placements allow companies to offer securities that do not have to be registered with the Security Exchange Commission (SEC).
Benefits of private placements include:
• Few reporting requirements
• Allows companies to hand-pick their investors
• Less expensive than an IPO
• Quick capital raising
• Available to new, middle-aged and mature companies
• Information disclosed is determined by the number and type of investors
Private placements allow for the possibility of economic growth, regardless of where the public traded exchanges seem to be heading. It certainly helped companies such as Microsoft and Intel, both of whom began as private entities.