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Non-Tech : Private Placements
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To: Bert Klimer who wrote (4)7/6/1998 7:54:00 PM
From: Henry Volquardsen  Read Replies (2) of 56
 
My experience with private placements has been good. But they are high risk and it is even more important than with listed equities to do extensive due diligence. It is not just a matter of doing research into the company itself but you need to look at the viability of their business plan, qualifications of management, industry competition etc. It requires a lot of leg work before deciding to participate.

As far as trading restrictions, I go in with the assumption that there will be a lock up period. It is usually a condition imposed by the underwriter of the IPO and they will determine how long it is for. They want these restrictions to help insure the stock will trade well in the after market. You pretty much have to plan on a lock up.

I find private placements through a couple of sources. I have a group of friends and business associates who invest in these type of deals. As an informal group we rely on the varied talents of the group and let eachother know when we find an interesting deal. The most interesting deals I have found have been through this group. I also do business with a boutique investment bank that specializes in this type of deal. The good part of using this firm is that their investment bankers have torn the deal apart and get actively involved with the company. The downside is that they are further down the road than the deals I get through my private network so they are not quite as rich.

It is also worth noting that I am taking a portfolio approach to this sector. By that I mean I assume that several good deals won't make it but that it is difficult to tell which in advance. So by investing in a large group of deals you increase the odds that one or two klunkers won't sink you.

I would also be interested in Chloe's views on this.
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