Private Placement Capital Raises

Capital Raises

Sources of capital consist of: family offices, accredited investors, super angels, angel groups, institutional debt funds, mezzanine debt funds, private equity funds, and venture capital funds.  Raising capital is governed by Regulation D, which was created by the Securities Exchange Commission (SEC) in 1982 under the Securities Act of 1933. It enables smaller companies to raise necessary capital and consists of eight rules covering terms, definitions, conditions, filings, and other provisions.

In most Regulation D private placements there are restrictions on the types and number of investors. Generally speaking there is no limit as to the number of accredited investors that can invest in a private placement.

An accredited investor is defined in the Securities Act of 1933 as any one of the following (quoting “Private Placements” training material by Quest CE):

  • Any Institution (bank, insurance company, broker-dealer, investment company, employee benefit company, etc.)
  • An Insider of the Issuer (officer, director, general partner, ten percent or more shareholder of the company)
  • An Affiliate of the Company (spouses and immediate “financially supported” family members of company insiders)
  • An Unmarried Individual with either a $1,000,000 net worth or annual income of $200,000 per year for the prior two years and the expectation they will earn that amount in the current year.
  • A Married Couple with either a $1,000,000 net worth or annual combined income of $300,000 per year for the prior two years and the expectation they will earn the same amount in the current year.

A non-accredited investor does not meet the standards required to be accredited. Most private placements limit the number of non-accredited investors to no more than 35.

There are several other rules that are commonly associated with Regulation D Private Placements. FINRA regulates Private Securities Transactions of Associated Persons, including Registered and non-Registered employees.

Source: Quest CE, Inc.

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