How to Invest in Private Placements for Busy Professionals

Are you a busy professional or high-net-worth investor? 

Then a Private Placement is an investment option you should look into!  

What are Private Placements? 

A Private Placement, also known as group investing,  is a private funding round of securities that are sold not through a public offering, but rather through a private offering, mostly to a small number of chosen investors. Generally, these investors include friends and family, accredited investors, and institutional investors. 

Regulation D of the Securities Act provides a registration exemption for private placement offerings. It also offers investors a variety of advantages, including maintaining confidentiality, accessing long-term fixed-rate capital, diversifying financing sources, and creating additional financing capacity.

A private placement is when main street investors invest in the main street and keep the money out of Wall Street. These can be attached to a hard asset, such as an apartment building, a subdivision, commercial properties, and others.

What are some real-life examples of a private placement? 

Example 1: John finds a condo for $100,000. He gets four of his friends to invest $25,000 each, and they split the profits five ways. John manages everything. 

Example 2: You read about a tech company raising $10 to $30 million in a “Series A Funding Round” or “Series B” investment. That is also a type of private placement. How much money is raised in these private placements?

U.S. private equity firms raised “healthy” amounts of money from investors after the pandemic began last year, according to PitchBook’s 2020 review of the industry. Some say a total of $203 billion was raised for investments by investors during the pandemic. In other sources, it was more in the $400 billion range. 

Compare that to what Wall Street is playing with. It is said that the New York Stock Exchange, which is by far the world’s largest stock exchange per market capitalization, is gambling around $120 trillion USD as of June 30, 2018.

Who can invest in private placements? 

There are some private placements that can take non-accredited investors, and some require accredited investors. 

What is an accredited investor? 

Individuals whose net worth either individually or jointly with their spouse equals or exceeds $1 million. It is important to note that while there is no definition of “net worth” in Regulation D, the value of the purchaser’s home is excluded in Section 501(a)(5)(i)(A) or a natural person who has “income” in excess of $200,000 in each of the two most recent years, and one who reasonably expects an income in excess of $200,000 in the current year (or $300,000, jointly with their spouse). 

What can you invest?

You can invest your SDIRA, eQrp, and income in Private Placement, check with your tax professional how these options could benefit you.

Soon, we will take a look at real-life examples of an inactive offering and discuss what to look for when deciding on an investment option.

If you’re interested in learning more about becoming an accredited investor, take our Qualifying Questionnaire to get started.