By Ayo Emakhiomhe.
PRIVATE PLACEMENTS.
Private placement or private investment capital is money invested in your company usually from private investors in the form of stocks and sometimes bonds.
This is usually a mode of investment sought by firms that either cannot or are not yet willing to approach the stock market. Some companies use this method as a preliminary to entering the market by introduction.
An introduction is an application for shares already in issue where no marketing arrangements are required. This is because the existing shares for which listing is sought are already of such amount and so widely held that there would be an open market for the trading in these shares. Since only existing shares are listed by introduction, it follows that no new shares will be issued and no additional funds will be raised.
The main benefits of this type of investment are
• High degree of flexibility in amount of financing with combinations of debt/equity
• Investors are more patient than venture capitalist, often seeking 10 to 20% return on investments over a longer term of 5 – 10 years
• Much lower costs than approaching venture capitalists or selling the stocks to the public as an IPO (initial public offering)
• Quicker form of raising money than usual venture capital markets.
WHAT IS REQUIRED FOR PRIVATE PLACEMENTS?
- A very sound business development consultancy company like Coinbox Limited to prepare the various documents and strategy plans.
- A very sound business plan- Coinbox Ltd can help you with this.
- A private placement memorandum (PPM) disclosing the full facts of the investment and business. A sample copy can be found at www.vlaonline.com/ppm.Coinbox limited can also assist with drawing this up for you.
- A law firm or lawyer experienced in private placements
With the limited infusion of capital into the stock market, the private investor market is an attractive alternative for investors and small businesses. Private placement offers a viable source of business financing without the stress of taking a company public and conceding control.
TARGET MARKET
• Your customers whom you are already doing business with and are familiar with
• Close friends and family
• Institutional investors like banks, finance houses, insurance companies, etc.
• Suppliers to your company
• Creditors to your company
• Distributors
• Company contractors
• Staff, etc.
What prospective investors usually look for before investing in a private company is return on investment as well as security of their capital.
Also, the investor will want to know how easy it is to pull out his investment whenever he has to. A solution to this is to make the offer redeemable which means that the company can buy back its shares whenever they are put up for sale.
To employ any of the methods outlined above, you must have already done your research/feasibility study and prepared a business plan. If you have not, please prepare that first before deciding which method or combination of methods will best suit your business plan and needs.
If you do not have a business plan, you are like an army general that went to war without any combat strategy, he and all his men were killed in battle.
Also, always Endeavour to start small; Even if you have all the capital to hit the high market with your product or service. Always start with just a small test first. Do a Test run of your venture before slowly releasing funds to grow it to size. By doing this you will see any small problems that otherwise would have been hidden by large outlays and your mistakes and losses will be small. Also, backing out if necessary will be at minimal loss/damage.
emakhiomheayo@yahoo.com
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Please note that previous posts on this and other topics are available by just a click on the archive to your right on this blog page.
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The COINBOX team.
REFERENCES:
http://www.investopedia.com/
http://sbinformation.about.com/cs/creditloans/a/prplacemt.htm
Raising capital for small businesses; non-bank ways of financing SME’s by Adekola Owolabi. Published by David Richard Associates (2006) Nigeria.
davidrichardass@hotmail.com.
http://www.askventure.com/
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