When it comes to investing in a private business, there are several things that need to be researched first. Moreover, once you’ve chosen a company to invest in, there are also many ways to do it. Private companies require more research before investing than a publicly traded company. Before investing in a private company, a lot of investors recommend speaking with many different people within the company, including:
- The CEO. Having a conversation with the CEO will assure the investor that their money is in good hands. The investor can find out the company’s overall vision and if the CEO is someone that can be trusted with the investment.
- Customers. Most experts recommend talking to at least three different customers to get an idea of the strengths and weaknesses of the brand. One of the most important questions to ask customers is what competitor they have used before and what influenced them to switch. This will give the investor a good idea of who the competition is and what the product or service’s major strengths and weaknesses are before they invest.
- Industry Experts. Talking to experts in the industry will give the investor insight into the questions that should be asked before becoming part of a business. Finding experts in the industry is as simple as conducting an online search on networking sites like LinkedIn.
- Lawyers. Talking to a lawyer will give investors the legal backing to go into the business deal understanding all of their rights. Getting that lawyer’s feedback will provide protection from future complications.
Once you have conversed with the people of the company and are considering moving forward with the process, there are several different types of investment opportunities that are available with a private company.
- Angel Investing. This type of funding is usually a matter of friends and family giving money to someone they know to start up their business. Normally, this type of investment is when the company is in its start-up stage.
- Venture Capital. Once the company is past the start up stage and needs money to continue to operate, the company will find investors who will offer growth capital, and in many cases, this investment will include management advice and guidance.
- Private Equity. Beyond the venture capital stage, once the business is more established, is the private equity stage. This type of investment offers ongoing financial support and opportunities for growth for the business. Investors in this stage often are looking at the possibility of the company going public in order to make a large profit on their investment. This type of investment is often taken on by business development companies (BCD), who loan money to companies for shares of equity before the company goes public.
There are many differences between private company and public company investments. Private companies require more research and risk on the part of the investor, but they can offer greater financial rewards in the future.