What is a 'Private Placement'

A private placement is the sale of securities to a relatively small number of select investors
as a way of raising capital. Investors involved in private placements are usually large
banks, mutual funds, insurance companies and pension funds. Private placement is the
opposite of a public issue, in which securities are made available for sale on the open
market.
Private placement offerings are securities released for sale only to accredited investors such
as investment banks, pensions or mutual funds. Some high-net-worth individuals may also
purchase the shares through these options. Companies using private placements generally
seek a smaller amount of capital from a limited number of investors. If issued
under Regulation D, these securities are exempt from many of the financial reporting
requirements of public offerings, saving the issuing company time and money. Marketing of
the issue may be more difficult for private placements, as these investments are quite risky
with lower liquidity than publicly traded securities.

Defining a Rights Issue

A rights issue is an invitation to existing shareholders to purchase additional new shares in
the company. More specifically, this type of issue gives existing shareholders securities
called "rights", which, well, give the shareholders the right to purchase new shares at a
discount to the market price on a stated future date. The company is giving shareholders a
chance to increase their exposure to the stock at a discount price.

Venture Capital Meaning:

This is a very important source of financing for a new business. Here money is
provided by investors to start a business that has strong potentiality of high
growth and profitability. The provider of venture capital also provides
managerial and technical support. Venture capital is also known as risk
capital.

Features of:
1. Venture capital investments are made in innovative projects.

2. Benefits from such investments may be realized in the long run.

3. Suppliers of venture capital invest money in the form of equity capital.
4. As investment is made through equity capital, the suppliers of venture
capital participate in the management of the company.

Advantages of Venture Capital:

The advantages of venture capital are as follows:
i. New innovative projects are financed through venture capital which
generally offers high profitability in long run.
ii. In addition to capital, venture capital provides valuable information,
resources, technical assistance, etc., to make a business successful.

Disadvantages of Venture Capital:

The disadvantages of venture capital are:
i. It is an uncertain form of financing.
ii. Benefit from such financing can be realized in long run only.
Stages of Venture Capital Financing
by A.V Bruno & T.T Tyabjee
1. Seed-Money Stage- sum of money provided to develop a concept or develop a
product,
2. Start-up Financing-capital used in product development and initial marketing,
3. First Stage Financing-financing provided lo firms that have expended their initial
capital and require funds to initiate production and sales,

4. Second Stage Financing-working capital used for initial financing of a firm that is
producing and shipping products,
5. Third Stage Financing-funds for the expansion of a growing firm that is either at
breakeven or incurring a profit, and
6. Fourth Stage Financing-capital invested in a firm that is expected to go public
within six months.
In finance, private equity is an asset class consisting of equitysecurities and debt in operating
companies that are not publicly traded on a stock exchange. A private equity investment will
generally be made by a private equity firm, a venture capital firm or an angel investor.
Private equity is equity capital that is not quoted on a public exchange. Private equityconsists
of investors and funds that make investments directly into private companies or conduct
buyouts of public companies that result in a delisting of public equity.

Private Equity Explained

Private equity and venture capital is finance provided in return for an equity stake in
potentially high growth companies. It is behind some of the UKs best known and most
innovative businesses such as Alliance Boots, Centre Parcs, Odeon & UCI Cinemas
and Spotify.
Private equity firms typically look to invest majority stakes in underperforming
companies that have the potential for high growth. Growth in the businesses is delivered
by working with the companys management team to improve performance and strategic
direction, making complimentary investments and driving operational improvements.
Venture capital firms, in contrast, invest in companies in the seed (concept), start-up
(within three years of the companys establishment) and early stages of development. In
areas such as clean technology, digital media, life sciences and the internet, venture
capitalists invest their capital and expertise to develop new products and technologies.
Private equity and venture capital firms are long-term investors, typically investing in
companies for around three to seven years. This means a commitment to building
lasting and sustainable value in the businesses they invest in. The only way to realise
returns for investors is to sell a business in better shape than when it was acquired.

Typically firms will sell their stake in a company by listing on the public markets or selling
to a strategic buyer.
Private equity and venture capital firms raise funds to invest from sources such as
pension funds, endowments and sovereign wealth funds.

Who benefits from private equity and venture capital?

As well as the companies that grow as a result of investment, the key beneficiaries are
known as institutional investors - the local authority that invests on behalf of its
pensioners, the corporate pension fund, the university endowment, or the foundation
that relies on high returns to continue operations.
Pensions, and other institutional investors, invest in private equity because they want
their investments to outperform the public markets. To find out more about the level of
outperformance read our Performance Measurement Survey.
If you are a pension fund trustee or work for an institutional investor visit our
Institutional Investors section.

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