Private placement brokerages are businesses that are licensed by FINRA and the Securities and Exchange Commission to provide capital to small businesses. These companies maintain extensive lists of individual investors and investment companies that specialize in making investments into small and medium sized businesses. A broker aggregates these private funding sources with the intent to provide capital to your company. It is imperative that you make sure that any private placement brokerage that you may use is properly licensed and has an extensive track record in regards to raising capital on behalf of their clients.

It should be noted that there may be some upfront fees associated with working with this type of capital raising firm. Foremost, you may need to have a private placement memorandum produced by a licensed securities attorney. You can anticipate that the costs associated with having this document written will be about $1,250 to $5,000. This is an extremely high upfront cost. You may also need to have a business plan written, which is often included in a private placement memorandum. On a side note, you should never have your intended brokerage produce this document as it will create a conflict of interest in regards to raise capital on your behalf. Your attorney will also be able to provide all of the necessary securities disclosures to the Securities and Exchange Commission. You may also need to make special filings with your state’s securities agency in regards to raising capital from private sources. Again, only a qualified attorney can make these determinations on your behalf. A certified public accountant may also need to attest to the accuracy of your financial statements when you are putting together a private placement memorandum for a business that is already in operation.

 

Most of the funding sources that a private placement broker has are angel investors. From time to time, these firms do work with venture capitalists, private equity groups, and small business investment companies. However, this will not impact a brokerage’s ability to raise capital on your behalf. This is due to the fact that a private placement provides a standardized investment agreement. If you are raising capital in this type of manner then you will notice that there is a tremendous similarity to taking a business public. In fact, according to the Securities and Exchange Commission a private placement is actually an offering for securities to third party funding sources. However, unlike an initial public offering, a privately placed offering is only distributed among qualified angel investors and accredited financial institutions.

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