Do you want to invest in private equity?
There is never just one way to invest. There are several paths to building wealth. The vast majority of investors will just invest into real estate and the stock market. The stock market is where public companies are traded.
Public companies are large, they have a staff of people that allow them the ability to list on the stock market.
Listing your stock on the public market is not free. The NASDAQ charges a large fee each year for a business to be listed on the exchange.
There are millions of small businesses that have not yet reach the level where the can afford to list on the public market or they choose to remain private.
There are a lot more regulations that public companies must follow, if a business remains private they can avoid a lot scrutiny.
But investing into private companies was once reserved for the rich. For many you still beed to be an accredited investor, which means that you have assets over $1 Million. Businesses want to know that as an investor you have the funds to invest in the business.
1. The Wealth Gap
One of the major reasons there is a wealth gap in America is because of business ownership.
Wealthy investors increase their wealth by investing in your businesses and those businesses grow and sell or grow and go public. In the past the government did not allow small investors to benefit from investing into small businesses, because it was seen as too risky.
A lot of small businesses go under.
But now smaller investors are allowed to invest in young growing businesses.
Hopefully, over time this will help close the wealth gap as more small investors buy into growing startups that then become public companies.
2. Shark Tank
I have to give credit to Share Tank for making private equity popular.
Businesses must pitch their business to receive investor money. Your business has to be good or it does not get picked.
Shark Tank has gamified investing in startups. But it has allowed individuals to become more knowledge about startups, investing, pitching and choosing the right partner.
Shark Tank has definitely helped the public understand what it means to invest in private companies and how they are or are not correctly valued.
I just mentioned Shark Tank. One of the main things that the sharks always argue about is valuation.
How much is the business worth?
That depends on who you ask. Mr. Wonderful will always try to get your valuation down to get a better deal, while the business always want to raise the valuation.
The biggest missed opportunity on the show was Ring. The sharks thought the valuation was too high, but the market had other ideas. Amazon came in and bought the business for more than anyone thought it was worth.
As an investor you have to be careful and understand that valuation is a metric that people disagree about and can detached from reality in many cases. You have to be comfortable investing at whatever valuation is being presented.
As a private equity investor you have more leverage. You have the money that those businesses want.
You can and should negotiate with the businesses that you are investing into.
5. Where can I invest in private companies?
Let me start with your local accountant.
What if I do not have a local accountant? Call one or several. Introduce yourself and tell them that you are an investor interest in investing into local businesses and if they have any to call you. Word will spread fast.
Local accountant are often book keepers for local small businesses. They also know other accountants.
If you are serious about buying or investing into local businesses adding these individuals to your network can be really valuable.
Just like accountants banks and credit unions provide services to small businesses. They can connect you with business owners.
7. Local investor networks
Most cities have an investor network where small businesses can pitch to local investors.
8. Where can I invest in private equity online?
There are now several platforms where you can invest in private equity online.