Although large mature companies can use PPs to raise capital, PPs are often used by smaller, early stage or growing companies. As a result, investing in a private placement gives an investor a potential to realize great returns if they back a right business. However, all investment returns must be considered in light of risks associated with such investment.
When it comes to risk, here’s a reality check: all investments carry some degree of risk. Stocks, bonds, mutual funds, exchange-traded funds, and private placements can lose value, even all their value. PPs may carry higher degree of risk of loss of all value since the companies issuing such securities are younger and have less operating history or are involved in development of novel products and services. Therefore, in evaluating each investment opportunity an investor should consider risks along with potential returns.
For more information see the link below
https://www.finra.org/investors/alerts/private-placements-risks
