If considering private investments, investors should understand the types of securities most often issued in debt and equity private placements.
This paper highlights three aspects: what each type of security represents as an obligation of its Issuer; what this means for investors; and how each is structured to perform for the investor.
Fundamental financial concepts are outlined: what is a security; what is a private placement; and what is a balance sheet. An analysis of each type of structure follows, explaining where in the Issuer’s ”capital stack” each falls – a critical factor in understanding preference in the event of liquidation.
Once understood, investors should grasp varying levels of risk and return each represents and can more easily choose structures most appropriate for their circumstances.