We also invest in existing private companies. We do an extensive evaluation of the potential company in order to evaluate the risk and collateral involved.
These type of investment are proven to be very profitable as well. The goal of certain of these private companies is to eventually go public and provide liquidity for the company founders or other investors. Other private businesses may prefer to stay private. Family businesses may also prefer their privacy and maintain ownership in the family for generations. These are important matters to be aware of when deciding to invest in a private company.
There are different risk levels when it comes to investing into private companies, however the riskier a private investment company is the higher the return on investment will be.
The best solution in these cases are to spread the investment between the various risk levels and yields in order to minimize the risk.
Private equity is also an option, and ironically a number of the largest private equity firms are publicly traded, so they can be purchased by any investor. A number of mutual funds also offer at investment options into private companies.
It is now easier than ever to invest in private companies, but an investor still has to do his or her homework about the company. While investing directly is not a viable option for most investors, there are different ways invest into private firms through more diversified investment vehicles. Overall, an investor definitely has to do a lot of work to investigate the respective company and overcome various obstacles when investing into a private firm as compared to a public one, but the work can be worth it as there are a number of advantages such as higher yield.
Overall, it is important to understand that private companies are not liquid and usually require longer investment time frames. Most investors will eventually like to liquidity their investment and cash out. This can be done when the particular company goes public and is buys out the private shareholders, or is bought out by a rival company or another private equity firm. As with any security, private companies need to be evaluated carefully to determine if they are fairly valued, overvalued or undervalued.
It is also important to note that investing directly into private firms is usually reserved for wealthy individuals. The motivation is that they can handle the additional illiquidity and risk that goes with private investment.
We can help you to make the right decision!