How To Invest In Private Equity Even If You’re Not Rich

In Tuesday’s Juice — So You Want To Be A Venture Capitalist? — we introduced some basics about private equity investing: 

The old model looked like this: The rich continued to get richer by restricting the possibility of the not-so-rich from even sniffing venture capital. While the rich continue to get richer, the playing field has, at least, been leveled. It’s a little less lopsided. This is a big victory, especially if you’re a young or otherwise savvy investor looking to broaden your horizons. 

However, it’s not just a win for the general investing public. It’s a win for businesses as well. 

Not every company has the capital and other resources necessary to get listed on an exchange or attract and secure venture capital via the traditional routes. Crowdfunding, made possible by the government regulations we’re about to detail, lets businesses, typically small startups, bring in cash to fund their endeavors and grow their businesses.

Yesterday, we detailed those regulations. 

Today, some one place, representative of a relatively large number, where you can be a venture capitalist, even if you’re a relatively small DIY, everyday investor. 

To be clear, we’re not necessarily endorsing the platform or investing ideas we point out. That said, we have a history working with the one we highlight today and like them a lot, otherwise we wouldn’t mention them. They make investing in private equity easy and accessible. And, to be clear, this isn’t an ad. We’re simply on board and consider this platform a leader in the space. 

That said —

Easy and accessible, but not without risk. In fact, for all that’s good about this ease of access (see, for example, the above quote), there’s necessary caution. When you search sites offering opportunities to invest in private companies, you’ll see a dizzying number of options. And, unlike when you run a stock screen, most of the results will be names you don’t know. 

Even though many of these platforms are very selective about who they include on their platform, you have to be selective as well. No matter the level you’re at, being a venture capitalist means several things, particularly: 

• It will generally take a long time — often up to ten years — to see a return on your investment, if you see any. 
• And, as you have heard a zillion times, most startups fail. 
• You will typically have considerably less information, fewer disclosures of financial information and a shorter track record to base your decision on. 

For every, a handful of people invested in Google, then YouTube, then Google went on to buy YouTube and now everybody’s rich, there’s a landscape littered with the Pets.com and Webvans of the world! 

That said, StartEngine is a great example of a solid platform where you can invest in startups with as little as $100. 

In terms of how much you can invest on platforms, such as StartEngine, that make opportunities under Reg A and Reg CF available, we’ll let StartEngine explain:

With Regulation A+, a non-accredited investor can only invest a maximum of 10% of their annual income or 10% of their net worth per year, whichever is greater. There are no restrictions for accredited investors.

With Regulation Crowdfunding, non-accredited investors with an annual income or net worth less than $124,000, are limited to invest a maximum of 5% of the greater of those two amounts. For those with an annual income and net worth greater than $124,000, he/she is limited to investing 10% of the greater of the two amounts. 

Again, there’s detail around these government regulations in Tuesday’s installment of The Juice. 

StartEngine says it only accepts fewer than 1% of the companies that apply to list on its platform. So this isn’t Kickstarter or GoFundMe. They’re super selective. 

A look at the investments that come up when you visit StartEngine includes:

• The most-funded on the platform, LegionM, billed as “The world’s first FAN-OWNED entertainment company.” As we write this, they have raised more than $4.5 million in their current round and just over $15.3 million in their previous rounds. You can get in with just $40, a number that is lower than the advertised $100 minimum and, according to StartEngine, the lowest minimum on its site.  
• The listing with the most momentum on the platform, Jurny, described as “Hospitality automation powered by AI.” Jurny has raised close to $750,000 in its current round and lists a minimum of just under $500. 

You can invest in aerospace, early cancer detection, wireless connectivity, clean energy, liquor brands. You name it. 

So StartEngine and platforms like it provide an excellent opportunity to diversify, but it doesn’t mean there’s no homework to do. You have to take a long hard look at not only individual companies, but the market they’re operating in to see where their competitive advantage lies. 

The Bottom Line: The days of prohibitive minimums and other requirements on the investor side are gone. The days of onerous regulations on the private company side are minimized, relative to going public or getting VC money from a place like Silicon Valley. 

To get at private equity you don’t have to be a huge investor. And you don’t have to merely buy private equity ETFs that often only invest in companies, such as the names in today’s Trackstar top five (see the top of this page), that makes up the big money. The large PE firms themselves. 

While this hasn’t made picking winners any easier, it absolutely has made the playing field a lot less lopsided. And that’s a big net win for everyday investors.

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