Bringing Private Markets to the Masses
When it comes to investing, we often think of traditional avenues such as stocks, bonds, and mutual funds that trade on the public stock exchanges. But did you know there's a whole world of investment opportunities beyond the stock market? In this blog post, we're diving into the exciting evolution of private placements. We’ll shed light on how they've transformed from their inception in the Securities Act of 1933 to the current landscape we like to call Private Placements 3.0.
A Brief History
Private placements have been around for nearly a century. They were initially established as part of the Securities Act of 1933, which aimed to protect investors by requiring companies to register securities offerings with the Securities and Exchange Commission (SEC). The Act also allowed for “exemptions” to these rules under certain circumstances. When a small business uses one of these exemptions to offer investors an opportunity to invest in their company, these investment opportunities are commonly referred to as private placements. Private placements allow companies to raise capital from private investors without going through the more rigorous public offering process, as long as the SEC rules for the exemption used are followed diligently.
The Game-Changer: The JOBS Act of 2012
These exemptions have been expanded through a series of enhancements over the years since the original law was passed in 1933. Times change, and so do regulations. Fast forward to 2012, and the investing world experienced another expansion of these exemptions. The Jumpstart Our Business Startups (JOBS) Act was signed into law, expanding the landscape of private placements. The JOBS Act aimed to increase access to capital for small and emerging businesses while providing everyone with opportunities to participate in private investments.
Expanding Exemptions: Reg A and Reg CF
The JOBS Act introduced a new exemption Regulation Crowdfunding (Reg CF), and made enhancements to Regulation A (Reg A). These actions expanded private company investment opportunities to non-accredited investors, which represents about 89% of U.S. households. (See the current definition of Accredited Investor here)
Reg CF allows companies to raise up to $5 million. Reg A allows companies to raise up to $75 million through a public offering while providing individual investors the chance to participate. The Reg D exemption allows a company to raise an unlimited amount of capital but is limited to Accredited Investors only (one exemption under Reg D - 506(b) - does allow up to 35 non-accredited investors).
Of these, Reg CF has arguably been the game-changer for democratizing investment opportunities for smaller businesses and startups. It allows companies to raise up to $5 million while enabling anyone, regardless of their income or net worth, to invest in the opportunity. This expanded access has created a level playing field where individuals from all walks of life can support the businesses they believe in and potentially participate in the rewards of their success if the company is successful.
Technology and the Rise of Online Platforms
One of the most significant enablers of Private Placements 3.0 is the Internet’s role in disrupting the traditional investment process. Online platforms have emerged, offering investment opportunities to a wider audience of individual investors while making the process more efficient and less costly. These platforms provide a streamlined, user-friendly experience that connects investors with businesses seeking funding. The Internet is simply disrupting the investing process much like it has with most other aspects of our lives.
Through these platforms, investing in private placements has become more accessible, transparent, and efficient. Investors can browse through a range of opportunities, conduct due diligence, and make informed investment decisions - regardless of where they’re located.
Investing for All: Breaking the Boundaries
Whether we’re looking to support innovative startups, champion sustainable initiatives, or contribute to a tribe that we associate ourselves with, investing in private placements empowers us to back the projects and businesses we believe in. This shift brings numerous benefits, breaking down the barriers that historically limited private investing to the privileged few.
By exploring private placements, we can embrace investments that resonate with us on a deeper level. It's not just about financial returns – it's about making a meaningful impact and supporting the businesses that align with our values.
Redefining Capital Raising for Business Owners
For businesses looking to raise capital, Private Placements 3.0 offers a game-changing alternative to traditional public offerings. By tapping into private placements, companies unlock a more efficient and streamlined approach to funding. This allows businesses to bypass the complexities and costs associated with public offerings and focus on what they do best: innovating and scaling their operations.
Private placements provide an expanded investor pool that businesses can tap into. This means access to a diverse range of investors who are eager to support entrepreneurial ventures and management teams they care about. By capitalizing on this investor pool, businesses raise funds more efficiently. This newfound capital allows them to accelerate their growth, invest in research and development, and propel their operations forward.
Your Path to Private Placements 3.0
Are you intrigued by the possibilities that Private Placements 3.0 offers? Here are three actionable steps to explore this exciting investment avenue:
Educate yourself: Familiarize yourself with the regulations, exemptions, and risks associated with private placements. Take advantage of resources such as online courses, webinars, and reputable financial platforms that provide educational materials. A good place to start is to review the SEC’s most recent annual report from the Office of the Advocate for Small Business Capital Formation here and their user-friendly Small Business Capital Raising Hub here.
Diversify your portfolio: Consider incorporating private placements into your investment portfolio as a means of diversification. Evaluate your risk tolerance and investment goals, and allocate a portion of your portfolio to private investments that align with your interests. Diversity by putting a portion of our funds into the private markets so that we’re not subject to the swings in the public markets. That’s what wealthy people do.
Choose a trusted platform: Select a reputable online platform with a track record of connecting investors with promising private placement opportunities. These regulated platforms are all authorized to conduct Reg CF offerings. Look for platforms that prioritize transparency, due diligence, and investor protection. Better yet, look for SEC-registered Broker-Dealers (Folla Capital is one) who facilitate exempt offerings, including Reg CF, Reg D, and Reg A.
Private placements have come a long way since their inception in 1933. Thanks to the JOBS Act and technological advancements, Private Placements 3.0 has paved the way for a new era of investment opportunities for all of us. With expanded exemptions, increased accessibility, and the power of technology, individuals from all walks of life now have the chance to invest in exciting companies and shape the future of businesses and industries.
Take control of your investment journey and explore the world of private placements today!
Disclaimer: Investing in private placements involves risks, and individuals should carefully evaluate each investment opportunity based on their own financial situation and risk tolerance. Seek professional advice before making any investment decisions.