The final documents include agreements between the issuer and the investor in which the parties agree to participate in the offer and the specific terms of the investment relationship. These documents are executed by the investor and/or issuer depending on the nature of each agreement (see below for each type of agreement). There are minimum regulatory requirements and standards for a private placement, although it is the sale of securities, as in the case of an IPO. The sale should not even be registered with the U.S. Securities and Exchange Commission (SEC). The entity is not required to provide a prospectus to potential investors and detailed financial information should not be disclosed. The same regime allows an issuer to sell securities to a group of previously selected investors who meet certain requirements. Instead of a prospectus, private placements are sold through a Private Placement Memorandum (PPM) and cannot be widely known. Private placements have become a common way for startups to obtain financing, particularly in the internet and financial technology sectors. They allow these companies to grow and develop, while avoiding the full appearance of public control that is accompanied by an IPO. Investors invited to participate in private placement programs include wealthy individual investors, banks and other financial institutions, investment funds, insurance and pension funds. European borrowers should seek external legal advice to ensure that private placement documents do not deviate from market practice and correspond to their existing lending facilities.
The private placement process begins with an information memorandum describing the borrower, his activities and financial situation and forwarded to potential investors, usually through an investment bank. A private equity investor may also require a larger share of the company or a fixed dividend payment per share. A private placement is a sale of shares or bonds to selected investors and institutions, not on the open market.