Final answer:
Private placements are indeed used to sell stock to individual investors. This method typically involves selling to a select group of private investors and is different from an initial public offering (IPO), where the shares are available to the general public. The statement is true.
Step-by-step explanation:
The statement that private placements are used to sell stock to individual investors is true. Private placements are a means of raising capital by selling stocks or bonds to private investors rather than the general public. This method is significantly different from an initial public offering (IPO), where the shares are made available to the public at large, including private individuals as well as institutional investors like mutual funds, insurance companies, and pension funds.
Companies may choose a private placement in order to access funds more quickly and to maintain closer relationships with investors, as it allows for less regulatory paperwork compared to public offerings. Venture capitalists and angel investors often participate in these private transactions.
They can provide capital to start-ups and smaller companies that might not be able to raise funds publicly due to their size or because they do not wish to disclose certain information required for public offerings. These investors also benefit from having a deeper insight into the company's management and future potential prior to investing.