TLDR:
A private placement is the sale of securities directly to a select group of investors without a public offering, typically to accredited investors or institutions, exempt from full SEC registration requirements.
Private Placement vs. Public Offering
The choice between private placement and public offering involves tradeoffs in cost, speed, investor reach, and ongoing disclosure obligations. Public offerings allow access to the broadest pool of capital and create liquid securities, but require SEC registration, extensive disclosure, underwriting fees (typically 5-7% of proceeds), and subject the company to continuous public reporting requirements. Private placements are faster and cheaper but limit investor base to accredited investors, restrict transfer of securities, and don’t provide the pricing transparency of public markets.