What is the difference between an initial public offering (IPO) and a private placement offering?

An IPO differs from a private placement because an IPO is a company's introductory sale of shares to the general public whereas a private placement is a company's private offering of shares to institutional and accredited investors. Thus, private placements are exempt from the stringent registration requirements, and allow the issuing company to save on costly underwriting fees associated with IPOs. Because they are not publicly traded on an exchange, private placements are also less liquid and have limited public information, but have the potential for a much higher return.

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