Private placement is the art of selling large blocks of tokens to private investors, usually before those tokens are available on the common market. There are a number of reasons for this practice. First, private investors tend to be more sophisticated and are able to place large buys. The literal buy-in of a well-established investor, especially one with a successful track record, will encourage future buying as the highest risk purchase is the first. 

Private buyers also provide early funds, possibly before the whitepaper is finalized if they really believe in the strength of the team. In addition, accredited larger investors also have a special legal status in many jurisdictions, including in the United States. This status makes it much safer to sell to them in the uncertain legal environment that faces ICOs.

Private placements can happen in a number of ways:

1. The founders either already know or meet high net-worth individuals or organizations that do private buys, such as family offices
2. The founders hire advisors who can connect them to private buyers
3. The project gets enough buzz and interest pre-investment that buyers seek them out

If the founders do not have an extensive network, they will need to build one as best they can. This can be done by going to conferences, giving talks, attending meetups, and building genuine relationships. This process can take a long time, and founders are encouraged to begin this activity immediately. Networking such as this should happen if you are even considering a blockchain startup or ICO, even before the company is founded. It's also important that a genuine relationship is formed—once these people buy in, they are essentially partners. Their success is the company's success, so they will be highly motivated to help promote the company. At the same time, the company's failure is their failure and loss, so they will want to have a strong trust in the abilities of the founders. Relationships such as this are rarely made instantly.

One step removed from this process is finding the right advisors. Advisors who have access to investors will absolutely wish to be paid for their services, often up front and with a percentage of the raise. Too many people want access to investors to be worth bothering with anyone with no resources at all. Moreover, these advisors must also believe in the project. For an advisor to bring investors bad projects is to lose access to that investor and sour their relationship. Responsible advisors will, therefore, refuse to introduce projects until those projects are truly ready for investment.

The last way for private sales to happen is for a project to get enough interest publicly that investors seek out the project. Because project hype corresponds strongly to token prices, buying into a token with a lot of hype and PR is seen as a safer investment. Smart investors will still strongly vet the project and team, but this evidence of early traction makes things much easier.

Many teams start their fundraising approach with a private placement round. In a few cases, this may be all the team needs.

Well known funds that do private placement are the Crypto Capital Group, the Digital Currency Group, Blockchain Capital, Draper Associates, Novotron Capital, and Outlier Ventures.