Private company investing can be a particularly opaque black box for individuals looking to participate in this asset class. The questions abound… seemingly simple questions: What do I look for? What are the opportunities? What should be my expectations? How much should I invest? How do I get in?
There are no straightforward answers to these questions. More often than not, any answer starts — and frequently ends with — it depends. The uncertainty can be unnerving.
I have been involved with private company investing for over 20 years. I learn — and sometimes re-learn — something new practically every day. It is humbling. But it has also been rewarding. Through the years and through my experiences, I have come upon some realizations that serve as guideposts to my private investment activities going forward. They are what I refer to as my Five Keys to Private Company Investing Success.
Who You Know Is Much More Important Than What You Know
As a novice in the private company investment world, I would engage in hour upon hour of research to assess the opportunities that lay before me… only to realize that I would never, ever really understand them. It took me a few years, but I finally did figure out that 99 times out of 100, I could get better answers and insights from talking to an expert for 30-45 minutes than I could attain on my own in 30-45 years.
My goal is always to be the dumbest person in the room. Or on a call in these days of COVID. The experts can make me much smarter about something than I ever could be on my own.
Take Advantage Of The Wide Array of Investment Opportunities
Private company investments come in all kinds of sizes and structures. There is everything from venture capital, growth capital, private equity, subordinated debt, and other ways to invest across the private company spectrum. Every type of deal — and even every specific deal — has a unique profile of risk-reward characteristics.
The principles of diversification that are utilized in a stock portfolio are very applicable to a private company investment portfolio as well. It is entirely possible to invest across the spectrum to avoid a fate similar to going all in on a single hand.
Understand Your Limitations And Stay Within Them No Matter What
Private company investing can be a rewarding — financially and otherwise — experience. But these opportunities do have a high-risk profile relative to other asset classes, such as government bonds. Anyone considering investment in this asset class should limit it to a fraction of their total investable assets.
I have seen a myriad of instances over the years where investors have “stretched” in putting more money into a deal than they probably should have. This is not an asset class to overweight, especially for a single deal. A toe in the water is much better than diving into the deep end of the pool.
Patience Is A Virtue You Must Hang Onto
One of the aspects of private company investing that surprises people when they enter the realm is how long it can take for an investment to liquidate. In other words, their money can be tied up for years with limited or no ability to get it out. Private companies are just that — private — so, unlike a publicly traded stock, you cannot buy and sell an investment whenever you want.
Experienced private company investors know that it can take time for a company to build value and provide a compelling return. The term “patient capital” is considered a badge of honor. The quick hit home runs are relatively few and far between. This is an arena where, by and large, playing the long game pays off.
It All Comes Back To The People
At the end of the day, success with private companies, like many things in life, comes down to the people involved. Betting on a good management team above everything else is a cliche, but, as they say, there is a reason cliches become cliches. And it’s not just about the management teams… it’s about everyone involved with an investment or company — the employees, the service providers, the customers, the vendors, and on and on.
Building and operating within an ecosystem of capable people is the number one determining factor I have seen over the years for success versus lack thereof. The best private company investors have the relationships to create and maintain these ecosystems so that success follows one investment to the next. To paraphrase the famous political line, it’s about the people, stupid. And I love being the dumbest person in the room every time.
One More Thing To Know
Private company investing is not for everyone. Literally, it is not for everyone. By law and regulation, the offering of private, unregistered securities can only be made to accredited investors. Information about accredited investor requirements can be found here:
About Merrette Moore: Merrette Moore is the Managing Partner of Tidewater Investment Company, overseeing the operations of the firm. Merrette has over 25 years experience working in finance, company management and innovation. He has been involved in over 50 private investments, serving as the lead investment representative for many of these deals. Merrette has participated on the boards of several privately held companies either as the executive chairman, director or an observer.
About Tidewater Investment Company: Tidewater Investment Co. is a North Carolina investment firm focusing on small company direct investment as well as healthcare venture capital. Tidewater provides unique access to subordinated debt, small company private equity, growth capital, and venture capital investments for high-net-worth individuals, family offices, and small institutional investors. The firm’s investment platform allows investors the flexibility to invest on a deal-by-deal basis without any upfront commitment of long-term obligation.
For More Information, please visit our website: www.tidewaterinvestco.com.
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