Through private placement, shares or ownership are offered to a limited number of qualified persons of financial institutions.
The equity of the publicly traded companies on the stock exchanges is called the public equity or common shares which are available to everyone. The equity part of the privately (not traded on stock exchanges) held companies is called the private equity. Private placement enables the private companies to transfer shares or ownership directly to the investors or financial institutions.
Private companies sometime go for private placement process to sell some share or ownership to the Mutual Funds or other Private Equity funds just before the IPO at the IPO price to increase the confidence in the IPO among the investors.