Private Placements Growing in Popularity

Companies, especially smaller ones, are looking away from venture capital toward private placements.

More and more companies are looking away from venture capital and toward private placements as a source of cultivating capital.

Private placements, speaking in general terms, are non-public offerings of company stock to a small group of investors that does not require U.S. Securities and Exchange Commission registration. Since all private placements are not extensively tracked, it is difficult to say with certainty exactly how many occur in a given year, however, Regulation D filings, an SEC regulation governing private placement exemption, can serve as a reliable indicator of activity. According to Capital Hunter, a California-based research firm, there were nearly 2,000 more Reg D filings in 2004 that the year before – accounting for a 14% increase.

"We’re seeing a lot more companies of all shapes and sizes turning to private placements as a source of funding," Seymour Siegel, a principle partner at the Siegel, Rich Division of Rothstein Kass & Co., said. According to Siegel, private placements are becoming more of an alluring option to companies with limited equity, low liquid capital or companies that are leery of letting outside influence creep too deeply into their corporate structures.

"Venture capital is still a sound option for many companies," Siegel said. "But private placements dilute outside influence among several investors, and they require very little money, relatively speaking, to get going. So they fit smaller, closely held companies very well."

By: Allen P. Roberts Jr.

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