Private placement refers to the departments and units set up to raise funds from a few institutional investors through non-public means. Because the sales and redemption of private equity institutions are conducted through private consultation between fund managers and investors, they are also called departments or units that raise funds from specific targets.

The operation mode of private equity institutions can be illustrated by an example:

A family has planted a large area of rice, and the harvest is good, and the price increase is also very large. However, when they find that they do not have enough labor and have no direct contact with grain merchants, they are likely to be depressed. At this time, they need a private placement agency to help.

Private equity institutions have invested a considerable amount of capital to obtain a certain proportion of shares, hired a large number of laborers to expand their harvesting capacity, and even merged rice from other families nearby, and then negotiated a better price with grain to make rice a brand and sell it higher (enterprises are listed).

But they won't hold this share all the time, and will sell it when the rice brand is listed and the stock price is high.

In this way, after a period of operation, private equity institutions can successfully let the invested enterprises go public, increase assets, invest 100 million yuan, several months or a year or two, and then turn around and look for the next enterprise that needs funds, and invest and operate repeatedly.

Extended data:

The general characteristics of private equity fund-raising;

1. In terms of fund raising, it is mainly raised by a few institutional investors or individuals by private placement, and its sales and redemption are carried out by fund managers through private consultation with investors.

In addition, the investment method is also carried out in the form of private placement, which rarely involves the operation of the open market and generally does not need to disclose the details of the transaction.

2. More equity investment is adopted, and debt investment is rarely involved. Therefore, PE investment institutions enjoy certain voting rights in the decision-making management of the invested enterprises. Reflected in investment instruments, common stock or transferable preferred stock and convertible bonds are commonly used.

3. Equity investment in non-listed companies, or investment in non-publicly traded equity of listed companies, is regarded as long-term investment due to poor liquidity (generally up to 3 years, 15 years or longer), so investors will demand higher returns than those in the open market.

There are many sources of funds, such as wealthy individuals, venture funds, leveraged buyout funds, strategic investors, pension funds and insurance companies.

There is no listed transaction, so there is no ready-made market for the transferor of unlisted company to directly reach a transaction with the buyer. Investors who have money to invest and enterprises that need to invest must rely on personal relationships, industry associations or intermediaries to find each other.

6. It is more inclined to a molding enterprise that has formed a certain scale and generated stable cash flow, which is obviously different from VC.

Baidu encyclopedia-private placement organization