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What is a Placement Agent?

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  • Written By: Jim B.
  • Edited By: M. C. Hughes
  • Last Modified Date: 30 October 2016
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In finance, a placement agent is an individual or firm hired by one company to seek out investors for that company. This can occur when a private equity firm looks to raise money from outside investors for the purpose of buying other companies. A placement agent can also be involved when an established company is looking to raise capital from investors to increase business. Placement agents are often skilled at negotiating financing deals between two companies and often receive a fee based on the amount of business they bring in for their client.

Most companies or business enterprises reach some point where they need to raise capital. When this point arrives, such entities may not have the experience or the connections to find the financing they need to improve their operations. The ability to match up a company looking for money and investors willing to give out that money is a highly valuable quality to have in the business world. For that reason, a placement agent is often hired to make investment deals happen.

When a company hires a placement agent, it is generally getting an experienced investment expert who has brought together many different deals and has made numerous business connections. In addition to that, the agent has the ability to negotiate terms between the two parties. Such terms may include how much money the investors will pay or how much equity in the company they will receive.

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A private equity company will often make use of a placement agent to find investors for its operations. By raising more cash from investors, the agent also broadens the scope of possibilities for the company's potential investments. On the other hand, an entrepreneur who has just started his own business and needs funds might also consider an agent to do some of the business legwork for him. Doing this allows the entrepreneur to focus his energy on the business operations while the agent handles any investment negotiations.

The typical arrangement between a company and a placement agent stipulates that the agent gets a fee based on the amount of investment money he brings into the fold. This provides incentive for the agent to work diligently to find investors for his clients. In some cases, an agent will be placed on retainer by a company and receive a steady fee. Such an arrangement might make sense if the company plans to employ the agent over a long period of time for various investment deals.

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