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You sell shares in your corporation -- not on the open, public market, but to select individuals. You'll be deciding how much of the company to sell, at what price, to how many private investors, and even which investors. That's a lot of control, but also a lot of footwork.
Companies that need an infusion of capital to jump to the next level of growth, but that already have a proven track record. Your company is successful enough to be a solid investment for outside investors, but you don't have the time, patience or inclination to take it public right now.
When you're looking for a substantial infusion of capital but aren't a good candidate for a venture capital firm or don't want to do a public offering.
When neither you nor anyone else in the company is comfortable or effective in the sales role.
When your business' growth will be too flat to distribute profits to a lot of investors fairly soon (before they become impatient and start phoning all the time)
When you can't spare yourself (or anyone else) from operations to chat with the number of potential investors you'll have to woo.
Network! Turn your nose up at no one, for her contacts and money may prove invaluable in the future. This is where contacts within your own industry or neighborhood may pay off big -- trawl the trade associations, local business groups, and clubs.
Get a lawyer seasoned in private placements. Private placements are overseen only loosely by the Securities and Exchange Commission, but state securities and exchange officials will want to review your documents just to see what you're doing. To satisfy them, have your attorney prepare the paperwork. Tread lightly as you promote the private offering so as not to attract the attention of the regulators early on for innocent hyperbole.
Regulations that require you to qualify your investors by income. Investors in private placements must have substantial personal wealth and annual income. Recognizing that private placements often represent risky investments, the government wants to make certain investors can afford to lose the money if the company doesn't make it.
Lawsuits. It's all too easy for investors to hear your plans as promises. If they buy shares expecting a windfall, they may be disappointed -- and sue.
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