Investing in Companies Not on The Stock Market

by Andrew McGuinness     Jul 16, 2019

Some companies steer clear of the stock market, but this does not mean they are not worth your investment. They keep to themselves and are called ‘private’ companies that you have to invest in off of the market. Some people assume that the only companies even worth investing in will undoubtedly be on the most competitive, well-known investing platform known to man. But how much truth does this hold?

Honestly, there are plenty of private companies that are just as worth your investment as the most popular companies available on the market. You are just as likely to receive high returns from these companies as you are with any stock. But what exactly goes into investing in a private company? What types of private companies are available to invest in? Here is everything you need to know about investing in private companies.

1. Private company types

The different types of private companies that investors are able to invest in are determined by the period of time they have thrived since first being developed. You can make a number of different investments when it comes to private companies depending on how well-developed a company is.

Angel investing, for example, refers to those investments allocated to companies that are just starting out and discovering how to stand on their own two feet. These companies are called angel firms. When these private companies have moved past this angel phase, they are considered to allow for venture capital investing.

This allows investors to provide the relatively new companies with capital in order to continue thriving and growing beyond its initial stages. This is the stage in which it becomes easier to determine whether or not a private company will provide you with high returns or struggle to survive.

After passing this stage, you will be able to enjoy mezzanine investing. This type of private company investment focuses on debt and equity. Following this stage, all investments in private companies are simply referred to as private equity investing, which, believe it or not, is a trillion dollar business with many of the largest investors taking part.

2. How to go about a private investment

The most opportunities for investing available are during the angel investing stage. There are more angel firms for you to choose from than any other type of private company. However, because these are only start-ups with no basis upon which to judge whether they will thrive or fail, return your investment or waste it away, they are also the riskiest of all private companies to invest in. It is advised that if you do invest in private companies, and it is your first time doing so, aim for one of the later stages of investment.

3. Details you should also take into account

Before investing in a private company, there are certain things you will have to keep in mind. This is not a stock market and should not be treated like one. There are not plenty of options available, and pulling your investment will take much longer than it will on the stock market.

For this reason, you will have to be completely sure of whether you would like for your funds to go toward an investment in private companies before you place your investment. The reason for this is that private companies obviously involve a drastically lower amount of liquidity than that of the stock market. Funds are not always available to you and may have to stay with the company longer than planned.

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