Private Placements also add an inexpensive capital raise alternative to existing public companies looking for a cash infusion. Private Placements into a public company are known as PIPE transactions. Usually PIPE transactions involve a singe or very small group of investors. In the normal PIPE transaction, the company agrees to register the privately purchased stock for public resale providing the investor with an upfront exist strategy. In the event that the Company does not register the stock, the PIPE investor can re-sell the stock after a one year holding period under certain circumstances, and after a two year holding period in all circumstances in which the investor is not an affiliate of the public company.
In both the Private Placement and the PIPE scenarios, the ideal investor is rather specific in nature and is sometimes referred to as an “Angel Investor” due to the fact that they are indeed saviors in the Private Placement arena.