Small Business Investing - Private Placements

This information is provided for general informational purposes only and should not be relied upon as legal interpretations by the Office, shall not supersede any part of the Florida Statutes or Florida Administrative Code, and does not constitute legal or financial advice. The Office does not endorse any third-party or guarantee the accuracy of any third-party information linked to or referenced herein.

Investing in a privately held company is not like investing in a publicly traded company. Private placements are often illiquid and have limited resale options, meaning your money may be tied up for a long time, and expected returns may not realized. Also, startup business investments are inherently speculative and carry a high degree of risk. Many businesses fail within the first few years of operation.  

Note: Financial criminals use unregistered offerings to conduct investment scams. If you suspect any fraudulent, deceptive, misleading, or illegal conduct by the issuing entity, submit a complaint to the Office of Financial Regulation online or by calling (850) 487-9687.

Before investing in a small business, take the time you need to develop a good understanding of the company and the terms of the investment. Review all available written information and disclosures and ask questions on anything you don’t understand. Be aware of verbal information that is not in the written disclosure documents. 

Considerations prior to investing in a private placement:

  • Did the issuing company provide financial statements? If so, what do they tell you about the business?
  • Have the financial statements been reviewed or audited by a professional third party?
  • Is the issuing company’s business plan reasonable? If so, do you understand how the company will generate revenue?
  • How reasonable is the issuer’s reliance on a particular technology, customer, product, or natural resources claim?
  • What does the issuing company’s market competition look like?
  • What is the experience and background of management?
  • How long has the issuing company been in business?
  • Has the company offered securities before?
  • How does the issuing company plan to use the money it raises?
  • If the securities you are considering purchasing have transfer restrictions, when and how will the restrictions be lifted?
  • Are you comfortable holding the securities indefinitely?
  • If the issuing company were to fail, could you afford to lose most, or even all, of your investment?