WSJ Q1 2018 Study: Private Placement Market Has More Than Doubled In Size During the Last 10 Years; $1.65 trillion raised via private placements sold to accredited investors in 2017. Entrepreneurs seeking to raise capital have long aspired to offer equity stakes through a public offering of shares in their companies, but as many inevitably discover, the road to raising funds via public markets is chock full of potholes. Yes, the JOBS Act, which was advanced under the Obama administration, envisioned making the entrepreneurs’ path to funding less cumbersome and less expensive compared to the traditional initial public offering process, but Regulation A+ offerings have been few and far between, despite the lower regulatory impositions on fast-growing startups seeking to raise money from investors.Hence, the private placement market is proving to be a more pragmatic approach, a thesis not lost on students of the “Unicorn” phenomenon.
Per excerpt from WSJ April 3 coverage by Jean Eaglesham and Coulter Jones, “…When the messaging app Telegram set out to raise billions of dollars this year for a project to launch a cryptocurrency, it shunned the stock market and instead invited a select group of firms to invest in its virtual coins.
These investors would be backing a project yet to be built. Little was known about the private company’s ownership or finances. Even so, 81 investors stepped forward to pour in $850 million, with other financing rounds still to come.
It was a mark of the dramatic rise of private capital markets, which have leapfrogged public markets to become the most popular way for companies to raise money in the U.S., a phenomenon that in some ways is changing the very way companies run and operate.
Private markets have “reshaped the financial landscape,” said Jason Thomas, director of research at private-equity firm Carlyle Group LP. “The growth of private capital is across the economy.”
With little information disclosed about money raised privately, including the identity of investors, it is difficult to get a clear picture of what’s happening in these private placement markets. An analysis by The Wall Street Journal found they have more than doubled in size over the past decade, surpassing the growth of public stocks and bonds available to all investors.
At least $2.4 trillion was raised privately in the U.S. last year, many via Regulation D offerings. That widened a gap that emerged in 2011 with the public markets, which raised $2.1 trillion, according to the Journal’s analysis of tens of thousands of securities filings and data provider Dealogic. Deals in form of private placements, the largest chunk of the private markets, raised at least $1.6 trillion for businesses last year, according to the Journal’s analysis of more than 40,000 filings.
The private markets are fueled both by companies eager to raise money without the regulatory burdens of going public and by investors looking for new ways to score large payouts outside of the stock and bond markets.
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