If you follow the junior resource market, you will hear of a lot of “Private Placements”. But what are they? When do companies use them? How do investors participate? What are the regulations around them? Who do you talk to? I thought I would help out by answering some of these questions and pointing to some good resources.
According to the BC Securities Commission’s investor education web site (www.investingright.org), a private placement is when:
A company issues securities privately rather than offering them to the public. This does not include a formal prospectus and the shares do not trade publicly on a formal stock exchange.
I would like to go into a little more detail.
When any company wants to raise money, they can do it by acquiring debt (loans) or issuing equity (shares). We all generally have an understanding of how debt works, although it can get quite complicated. But we’ll leave that for another time.
There is a general understanding of how shares are traded on a stock exchange. That is something that we see and hear about every day.
But how do those shares come into existence? From a very simple level, this can happen two ways: either an IPO or a Private Placement.
