Private placements are fundraising rounds that suggest getting capital from large institutional investors, like venture funds or private equity funds.
The problem with institutional capital is that big investors have a high bargaining power due to their size. It means that they can demand better terms, such as a higher equity stake, a place on the board of directors, and other conditions. These conditions often may be highly unfavourable for your business. For example, due to the so-called "liquidation preference", you as a founder may not get anything at all at an exit unless the company hits the outlandish growth targets.
Usually, funds significantly intervene in the business and your strategy, making you spend time focusing on negotiations and managing relationships with them. You can even get fired from your own company if investors disagree with the direction you are taking the company in. You should also anticipate having differences in the vision of values with your investors because their motives are different. You can be getting decent returns as dividends and have a good lifestyle if you develop a stable, well-functioning, and steadily growing business, but funds usually can get returns only if you are acquired or do a public offering. For this, the business needs to grow fast, even if this creates unbalanced economics, makes the company unprofitable, and increases the risks.
With tokenization, the choice of investors is flexible, which allows you to set your own terms and generally get higher bargaining power. Additionally, as tokenization enables trading even without an IPO, investors get higher flexibility for a cash-out, which means they now do not have to make the company chase ridiculous growth targets.
If you wish to find out how tokenization enables trading without the need to go public, watch our video “Trading without IPO: Liquidity for Equity Crowdfunding and Private Placements with DS Swap
” on the topic.