How To Invest In Private Companies - InvestingChannel

How To Invest In Private Companies

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Articles that tell you how much money you would have made had you invested $10,000 in this or that company’s IPO should annoy you. 

Here’s why. 

If you’re an investor of relatively modest means, chances are you didn’t have an opportunity to buy shares in any of these IPOs at their offer prices. There was an even greater chance you didn’t have a chance to invest in these companies when they were private. 

IPOs, particularly hot ones, tend to open and trade much higher than their offer price on IPO day. So only well-heeled investors – or everyday people who win a brokerage’s longshot lottery – tend to be able to buy shares in an IPO before they go wild in the open market. 

  • Google: $85 IPO price. Closed at $100.34 on IPO day. Up 18%. 
  • Snap: $17 IPO price. Closed at $24.48. Up 44%. 
  • Twitter: $26 IPO price. Closed at $44.90. Up 73%. 
  • Pinterest: $19 IPO price. Closed at $24.50. Up 29%. 
  • Zoom: $36 IPO price. Closed at $62. Up 72%. 

Certainly, you would have done well buying many of these stocks on the open market on IPO day or shortly thereafter. But this isn’t the point. 

It’s about access. Who has access? And who doesn’t? 

For example, Twitter’s first trade on the open market on IPO day printed at $45.10. Had you purchased Twitter at that price, you would have been slightly in the red on IPO day. However, the investor who received an allocation of IPO shares was up more than 70% when the morning bell rang. 

Not cool then. Not cool now. 

While investing in IPOs hasn’t changed much, slowly but surely we’re making the playing field more level. Some say the pandemic kickstarted this process with armies of retail investors routinely pushing meme stocks and altcoins higher. 

However, as The Juice introduced earlier this week – access to private equity investing might be the biggest game changer for all investors. Today, we continue that thought by highlighting how platforms you can use to invest in private companies keep you informed. We’ll also go deeper in the weeds on some of the government regulations that make it so.

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How To Invest In Private Companies

Key Takeaways:

  • When you give your email to an equity crowdfunding platform, they usually send you daily updates with new and existing opportunities. 
  • You need to take time to evaluate each opportunity just as you would when you buy stock in a public company or invest in crypto. 
  • While it’s not level yet, private market investing, via equity crowdfunding platforms, gives access to everyday investors that was once only available to the rich.  


Let’s go step-by-step to see how equity crowdfunding works in the day-to-day, using two popular platforms, SeedInvest and Republic

When you sign up with these and similar companies, expect to receive daily emails that look like this: 

Within each email, you get updates on existing opportunities and alerts about new ones. Like this one from Republic

If you click through to the deal page, you get more details, including how much has been raised alongside terms of the deal. Like this one on SeedInvest

It’s pretty much the Kickstarter model applied to early stage and other private startups. 

In the emails you receive and definitely on the deal page, you’ll see fine print like this. 

It tells you which government regulation the company is using to offer equity to investors. The Juice scratched the surface on this earlier in the week, particularly Reg A. Check that installment out for a refresher and some context. 

Companies can offer investment via several different government statutes, depending on their size, the amount of investment they’re seeking, and the level of reporting they must submit to the government. 

In the screenshot above, you see a handful of companies going through Rule 506(c) of Regulation D and Regulation CF. These are, for our intents and purposes, offshoots of Regulation A. Each with different stipulations for the issuing company and requirements for investors. 

For example, from the U.S. Securities and Exchange Commission’s (SEC) website, here’s what Rule 506(c) of Regulation D entails: 

Rule 506(c) permits issuers to broadly solicit and generally advertise an offering, provided that:

  • all purchasers in the offering are accredited investors
  • the issuer takes reasonable steps to verify purchasers’ accredited investor status and
  • certain other conditions in Regulation D are satisfied

You’ll notice that this only opens the investment opportunity to accredited investors (The Juice defined that term earlier this week). You’re probably not an accredited investor, therefore you can invest via Regulation CF. Here’s how the SEC defines that government code

Regulation Crowdfunding enables eligible companies to offer and sell securities through crowdfunding. The rules:

  • require all transactions under Regulation Crowdfunding to take place online through an SEC-registered intermediary, either a broker-dealer or a funding portal
  • permit a company to raise a maximum aggregate amount of $5 million through crowdfunding offerings in a 12-month period
  • limit the amount individual non-accredited investors can invest across all crowdfunding offerings in a 12-month period and
  • require disclosure of information in filings with the Commission and to investors and the intermediary facilitating the offering

When using Regulation CF and other avenues, companies typically have to report to the SEC, though not to the level they would have to if submitting IPO paperwork.

For the record, if you want to read the entirety of Regulation CF – Title 17, Chapter II, Part 227 of the Code of Federal Regulations – grab a beer or three because the PDF comes out to 33 pages of dense copy.  

The Bottom Line: As with any investment, you need to do your due diligence when going the private equity route. It’s cool that you can finally be a venture capitalist of sorts, but you certainly want to be a good one who makes money. 

While the playing field is hardly level, it’s getting closer, as everyday investors continue to have access to opportunities once reserved only for high rollers. For the big money. 

With this in mind, expect The Juice to continue our series on private investing in the weeks and months to come.

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