How to invest in private companies

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Topic Author
ThisJustIn
Posts: 596
Joined: Sun Mar 11, 2018 10:53 pm
Location: Sunnyvale, CA

How to invest in private companies

Post by ThisJustIn »

I'm looking for ways to invest in private companies.

I tried EquityZen last year, I indicated interest in SpaceX, tried to invest by making an offer, but there was no response later on.

Now, I want to revisit this. How do folks invest in private companies (e.g. SpaceX, or upcoming IPO by Discord)?
User avatar
arcticpineapplecorp.
Posts: 15081
Joined: Tue Mar 06, 2012 8:22 pm

Re: How to invest in private companies

Post by arcticpineapplecorp. »

ThisJustIn wrote: Wed Dec 08, 2021 2:09 pm I'm looking for ways to invest in private companies.

I tried EquityZen last year, I indicated interest in SpaceX, tried to invest by making an offer, but there was no response later on.

Now, I want to revisit this. How do folks invest in private companies (e.g. SpaceX, or upcoming IPO by Discord)?
1. work for the company and hope to get shares before they go public
2. be a venture capitalist and invest in a company you hope to take public
3. be a founder/family member and invest start up capital in exchange for equity.
4. invest in a private equity fund through Vanguard (limited right now to $500k minimum I believe, but Fran Kinniry thinks within a decade or more it might become available to the retail investor).
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
Topic Author
ThisJustIn
Posts: 596
Joined: Sun Mar 11, 2018 10:53 pm
Location: Sunnyvale, CA

Re: How to invest in private companies

Post by ThisJustIn »

arcticpineapplecorp. wrote: Wed Dec 08, 2021 2:12 pm
ThisJustIn wrote: Wed Dec 08, 2021 2:09 pm I'm looking for ways to invest in private companies.

I tried EquityZen last year, I indicated interest in SpaceX, tried to invest by making an offer, but there was no response later on.

Now, I want to revisit this. How do folks invest in private companies (e.g. SpaceX, or upcoming IPO by Discord)?
1. work for the company and hope to get shares before they go public
2. be a venture capitalist and invest in a company you hope to take public
3. be a founder/family member and invest start up capital in exchange for equity.
4. invest in a private equity fund through Vanguard (limited right now to $500k minimum I believe, but Fran Kinniry thinks within a decade or more it might become available to the retail investor).
Thanks.

1. I will do this in 5-10 years. For now, I'm working for big corps / public companies.

2. How can I be a VC? How do I qualify? I have ~2MM NW, which makes me an accredited investor, is this enough to become a VC?

3. Could you elaborate on this, especially the "invest start up capital in exchange for equity" part?

4. Does Vanguard have this benefit? I have more than 700K in Vanguard, I was on the call with them last week, asking benefits of being high-net-worth customer, and the customer service didn't mention anything significant. By the way, Fidelity sends me these IPO news, but I'm not sure if I'm eligible to invest before they go public. For Vanguard, given that I own 700K, can I invest in SpaceX / Discord before their IPO?
dukeblue219
Posts: 4074
Joined: Fri Jan 29, 2016 11:40 am

Re: How to invest in private companies

Post by dukeblue219 »

Am I wrong to assume SpaceX has no use for an individual with hundreds of thousands of dollars to offer? This is a hundred billion dollar corporation after all....
PoppyA
Posts: 1173
Joined: Sat Oct 11, 2014 4:24 pm

Re: How to invest in private companies

Post by PoppyA »

These guys are looking for backers. They are into space junk retrieval. The State of Michigan is heavily involved in supporting space initiative. Michigan is trying to revive the former greatness they had in manufacturing that faded away with technology.

Two spaceports are in the works near the Great Lakes.

https://www.kallmorris.com/
alex_686
Posts: 13320
Joined: Mon Feb 09, 2015 1:39 pm

Re: How to invest in private companies

Post by alex_686 »

ThisJustIn wrote: Wed Dec 08, 2021 2:17 pm 2. How can I be a VC? How do I qualify? I have ~2MM NW, which makes me an accredited investor, is this enough to become a VC?
Technically yes. In reality the minimum is a 20m portfolio with 50m a more realistic number.
ThisJustIn wrote: Wed Dec 08, 2021 2:17 pm For Vanguard, given that I own 700K, can I invest in SpaceX / Discord before their IPO?
This is a hard no. Even if you could get into a VC fund it would be a new fund investing in new projects and rarely do you get to see what the managers are reviewing and picking until after the fact.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Topic Author
ThisJustIn
Posts: 596
Joined: Sun Mar 11, 2018 10:53 pm
Location: Sunnyvale, CA

Re: How to invest in private companies

Post by ThisJustIn »

PoppyA wrote: Wed Dec 08, 2021 2:23 pm These guys are looking for backers. They are into space junk retrieval. The State of Michigan is heavily involved in supporting space initiative. Michigan is trying to revive the former greatness they had in manufacturing that faded away with technology.

Two spaceports are in the works near the Great Lakes.

https://www.kallmorris.com/
Company choice aside, how to I invest in private companies, is the question.
dukeblue219
Posts: 4074
Joined: Fri Jan 29, 2016 11:40 am

Re: How to invest in private companies

Post by dukeblue219 »

ThisJustIn wrote: Wed Dec 08, 2021 2:36 pm
PoppyA wrote: Wed Dec 08, 2021 2:23 pm These guys are looking for backers. They are into space junk retrieval. The State of Michigan is heavily involved in supporting space initiative. Michigan is trying to revive the former greatness they had in manufacturing that faded away with technology.

Two spaceports are in the works near the Great Lakes.

https://www.kallmorris.com/
Company choice aside, how to I invest in private companies, is the question.
There is no easy answer. You already got the best answer there is in the first reply. Private companies aren't publicly traded for good reason, and you won't find an E-Trade equivalent that lets you buy a half dozen hot PRE-IPO companies at $50k each.
PoppyA
Posts: 1173
Joined: Sat Oct 11, 2014 4:24 pm

Re: How to invest in private companies

Post by PoppyA »

ThisJustIn wrote: Wed Dec 08, 2021 2:36 pm
PoppyA wrote: Wed Dec 08, 2021 2:23 pm These guys are looking for backers. They are into space junk retrieval. The State of Michigan is heavily involved in supporting space initiative. Michigan is trying to revive the former greatness they had in manufacturing that faded away with technology.

Two spaceports are in the works near the Great Lakes.

https://www.kallmorris.com/
Company choice aside, how to I invest in private companies, is the question.

The first answer told you how.

The company I highlighted is looking for capital. You give them $, they give you something in return. But you have to contact them first.
Last edited by PoppyA on Wed Dec 08, 2021 2:50 pm, edited 2 times in total.
alex_686
Posts: 13320
Joined: Mon Feb 09, 2015 1:39 pm

Re: How to invest in private companies

Post by alex_686 »

ThisJustIn wrote: Wed Dec 08, 2021 2:36 pm Company choice aside, how to I invest in private companies, is the question.
It is a little like dating.

Those who are desperate for you, flinging themselves at you with a big advertising budget, may not be right for you.

Those that you are desperate for have already been snagged. Or don't need to advertise becuase they have enough suiters chasing them.

Generally speaking, there is a broker who offers a high touch service matching investor and firm. This is true both for VC funds and individual companies. BTW, do you have anything to offer besides cash? Many investors also pony up skills, experience, or contacts.

Or you start networking far and wide and hope to stumble on a young promising firm that is desperate for cash but is not at the VC level yet. Once again, these people tend to be looking for more than cash.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Topic Author
ThisJustIn
Posts: 596
Joined: Sun Mar 11, 2018 10:53 pm
Location: Sunnyvale, CA

Re: How to invest in private companies

Post by ThisJustIn »

dukeblue219 wrote: Wed Dec 08, 2021 2:42 pm
ThisJustIn wrote: Wed Dec 08, 2021 2:36 pm
PoppyA wrote: Wed Dec 08, 2021 2:23 pm These guys are looking for backers. They are into space junk retrieval. The State of Michigan is heavily involved in supporting space initiative. Michigan is trying to revive the former greatness they had in manufacturing that faded away with technology.

Two spaceports are in the works near the Great Lakes.

https://www.kallmorris.com/
Company choice aside, how to I invest in private companies, is the question.
There is no easy answer. You already got the best answer there is in the first reply. Private companies aren't publicly traded for good reason, and you won't find an E-Trade equivalent that lets you buy a half dozen hot PRE-IPO companies at $50k each.
Does E-Trade allow investing in private companies? I do have some funds with them, I can use it to invest in Pre-IPO companies.
dukeblue219
Posts: 4074
Joined: Fri Jan 29, 2016 11:40 am

Re: How to invest in private companies

Post by dukeblue219 »

ThisJustIn wrote: Wed Dec 08, 2021 2:50 pm
dukeblue219 wrote: Wed Dec 08, 2021 2:42 pm There is no easy answer. You already got the best answer there is in the first reply. Private companies aren't publicly traded for good reason, and you won't find an E-Trade equivalent that lets you buy a half dozen hot PRE-IPO companies at $50k each.
Does E-Trade allow investing in private companies? I do have some funds with them, I can use it to invest in Pre-IPO companies.
No, or at least not obviously. That was my point. There isn't something for private investments that works like Etrade (or whomever) does for publicly-traded common stock. Nor should there be.
alex_686
Posts: 13320
Joined: Mon Feb 09, 2015 1:39 pm

Re: How to invest in private companies

Post by alex_686 »

First, I would highly discourage you looking into PE, VC, and hedge funds until you are more informed. Investing in these requires a fair amount of sophistication. Please do not take this a rebuke. We all need to start someplace but it is obvious that you are at the very beginning.
ThisJustIn wrote: Wed Dec 08, 2021 2:50 pm Does E-Trade allow investing in private companies? I do have some funds with them, I can use it to invest in Pre-IPO companies.
Not really. These are almost always offered by a full-service brokerage firm. Maybe also the Private Banking branch at a bank.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
User avatar
AerialWombat
Posts: 3107
Joined: Tue May 29, 2018 1:07 pm
Location: Cashtown, Cashylvania

Re: How to invest in private companies

Post by AerialWombat »

deleted
Last edited by AerialWombat on Fri Feb 04, 2022 2:32 pm, edited 1 time in total.
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
User avatar
arcticpineapplecorp.
Posts: 15081
Joined: Tue Mar 06, 2012 8:22 pm

Re: How to invest in private companies

Post by arcticpineapplecorp. »

ThisJustIn wrote: Wed Dec 08, 2021 2:17 pm 3. Could you elaborate on this, especially the "invest start up capital in exchange for equity" part?
start your own company.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
User avatar
arcticpineapplecorp.
Posts: 15081
Joined: Tue Mar 06, 2012 8:22 pm

Re: How to invest in private companies

Post by arcticpineapplecorp. »

also realize there may be a lockup period (I think I recently read Vanguard's Private Equity Fund will have a 10 year lock up period). Hopefully you'll get your illiquidity premium there. Are you looking for some kind of get rich quick payoff scheme? Not sure private equity would be for you.

though neither is starting your own company hoping to take it public or being a venture capitalist hoping to take companies public which can also take years.

there's no quick path to wealth.

since you already have 2 mil, sounds like you're already there.

do you know what amount qualifies as "enough"?

that's something you want to consider.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
Topic Author
ThisJustIn
Posts: 596
Joined: Sun Mar 11, 2018 10:53 pm
Location: Sunnyvale, CA

Re: How to invest in private companies

Post by ThisJustIn »

arcticpineapplecorp. wrote: Wed Dec 08, 2021 4:17 pm also realize there may be a lockup period (I think I recently read Vanguard's Private Equity Fund will have a 10 year lock up period). Hopefully you'll get your illiquidity premium there. Are you looking for some kind of get rich quick payoff scheme? Not sure private equity would be for you.

though neither is starting your own company hoping to take it public or being a venture capitalist hoping to take companies public which can also take years.

there's no quick path to wealth.

since you already have 2 mil, sounds like you're already there.

do you know what amount qualifies as "enough"?

that's something you want to consider.
By Vanguard Private Equity Fund, do you mean this one? https://investor.vanguard.com/mutual-fu ... file/VSEQX . Interesting, I didn't know such a fund existed. ER is 0.17%, a little high but ok. So, you are saying, instead of picking companies to invest in and have single point of failure, do you recommend investing in this Vanguard Private Equity Fund? I'm used to investing in funds, my personal portfolio is heavily in 3-fund portfolio plus small-cap-value fund.

Regarding how much is enough, 8MM-10MM is enough for me and my future family. I'm in VHCOL (Bay area), hence the numbers. I want to go beyond this number, not for my own wealth, but because I will be creating my own businesses in the next 5-10 years, and I can use the funds (I know it will take a while to convert) for my own businesses, instead of using my nest egg.

Note: I'm not after get rich quick, investing in private companies is not for this. I'm steady and slow investor with my 3-fund portfolio plus small-cap-value fund (plus the RSUs in companies I worked at in the past). I have been working in public companies / big corps until now, and in the future I will move to private companies, and eventually I will create my own businesses. Hence the interest in private companies.
runninginvestor
Posts: 1796
Joined: Tue Sep 08, 2020 8:00 pm

Re: How to invest in private companies

Post by runninginvestor »

ThisJustIn wrote: Wed Dec 08, 2021 5:44 pm [
By Vanguard Private Equity Fund, do you mean this one? https://investor.vanguard.com/mutual-fu ... file/VSEQX . Interesting, I didn't know such a fund existed. ER is 0.17%, a little high but ok. So, you are saying, instead of picking companies to invest in and have single point of failure, do you recommend investing in this Vanguard Private Equity Fund? I'm used to investing in funds, my personal portfolio is heavily in 3-fund portfolio plus small-cap-value fund.

Regarding how much is enough, 8MM-10MM is enough for me and my future family. I'm in VHCOL (Bay area), hence the numbers. I want to go beyond this number, not for my own wealth, but because I will be creating my own businesses in the next 5-10 years, and I can use the funds (I know it will take a while to convert) for my own businesses, instead of using my nest egg.

Note: I'm not after get rich quick, investing in private companies is not for this. I'm steady and slow investor with my 3-fund portfolio plus small-cap-value fund (plus the RSUs in companies I worked at in the past). I have been working in public companies / big corps until now, and in the future I will move to private companies, and eventually I will create my own businesses. Hence the interest in private companies.
They may mean VG's recent foray into private equity outside of the normal traded fund.

Vanguard Private Equity
https://pressroom.vanguard.com/news/Pre ... 92021.html

They indicate you need to have both eligibility requirements: Qualified purchaser and accredited investor:

[1] Qualified Purchaser: Includes, among others, natural persons owning not less than $5 million in investments; family offices owning not less than $5 million in investments; trusts not formed to acquire securities offered and each trustee and settlor is a qualified purchaser; and other entities not formed to acquire securities offered that own not less than $25 million in investments.

2 Accredited Investor: Includes, among others, natural persons holding the Series 7, 65, or 82 licenses in good standing, or with a net worth of not less than $1 million, or more than $200,000 in annual income ($300,000 joint annual income with spousal equivalent); family offices and family office clients; 501(c)(3)s, corporations, LLCs, and partnerships not formed to acquire securities offered and with total assets in excess of $5 million; trusts with assets greater than $5 million not formed to acquire securities offered and directed by a sophisticated person; any entity the equity owners of which are accredited investors.

There was also this article recently:
https://www.marketwatch.com/story/as-va ... 1638828074

I think there was a thread on it
Topic Author
ThisJustIn
Posts: 596
Joined: Sun Mar 11, 2018 10:53 pm
Location: Sunnyvale, CA

Re: How to invest in private companies

Post by ThisJustIn »

ThisJustIn wrote: Wed Dec 08, 2021 5:44 pm
arcticpineapplecorp. wrote: Wed Dec 08, 2021 4:17 pm also realize there may be a lockup period (I think I recently read Vanguard's Private Equity Fund will have a 10 year lock up period). Hopefully you'll get your illiquidity premium there. Are you looking for some kind of get rich quick payoff scheme? Not sure private equity would be for you.

though neither is starting your own company hoping to take it public or being a venture capitalist hoping to take companies public which can also take years.

there's no quick path to wealth.

since you already have 2 mil, sounds like you're already there.

do you know what amount qualifies as "enough"?

that's something you want to consider.
By Vanguard Private Equity Fund, do you mean this one? https://investor.vanguard.com/mutual-fu ... file/VSEQX . Interesting, I didn't know such a fund existed. ER is 0.17%, a little high but ok. So, you are saying, instead of picking companies to invest in and have single point of failure, do you recommend investing in this Vanguard Private Equity Fund? I'm used to investing in funds, my personal portfolio is heavily in 3-fund portfolio plus small-cap-value fund.

Regarding how much is enough, 8MM-10MM is enough for me and my future family. I'm in VHCOL (Bay area), hence the numbers. I want to go beyond this number, not for my own wealth, but because I will be creating my own businesses in the next 5-10 years, and I can use the funds (I know it will take a while to convert) for my own businesses, instead of using my nest egg.

Note: I'm not after get rich quick, investing in private companies is not for this. I'm steady and slow investor with my 3-fund portfolio plus small-cap-value fund (plus the RSUs in companies I worked at in the past). I have been working in public companies / big corps until now, and in the future I will move to private companies, and eventually I will create my own businesses. Hence the interest in private companies.
Also, could you explain this? When I compare VSEQX vs. VTSAX, growth of 10K between 2001-2021, I get VSEQX > VTSAX: https://www.portfoliovisualizer.com/bac ... ion2_2=100

For both VSEQX and VTSAX portfolio, when I set the same portfolio to contribute 1K per month, rebalancing annually, this time VTSAX wins, although barely, I get VTSAX > VSEQX: https://www.portfoliovisualizer.com/bac ... ion2_2=100

Which one has the highest returns?
luckyducky99
Posts: 415
Joined: Sun Dec 15, 2019 6:47 pm

Re: How to invest in private companies

Post by luckyducky99 »

ThisJustIn wrote: Wed Dec 08, 2021 5:44 pm Note: I'm not after get rich quick, investing in private companies is not for this. I'm steady and slow investor with my 3-fund portfolio plus small-cap-value fund (plus the RSUs in companies I worked at in the past). I have been working in public companies / big corps until now, and in the future I will move to private companies, and eventually I will create my own businesses. Hence the interest in private companies.
Why do you want to invest in private companies? The point of pre-IPO companies is that they tend to be high-risk high-potential-reward.

If you want to learn about startups, go work for one. Lots of startups in the Bay Area, lots to learn from the inside. I know startup founders and none of them ever invested in any before starting their own. It is the kind of thing you do after you've had some first-hand success with a startup, have learned the ins and outs and wrinkles, and maybe have enough knowledge to know what to look at when you're considering investing.
Topic Author
ThisJustIn
Posts: 596
Joined: Sun Mar 11, 2018 10:53 pm
Location: Sunnyvale, CA

Re: How to invest in private companies

Post by ThisJustIn »

luckyducky99 wrote: Wed Dec 08, 2021 5:58 pm
ThisJustIn wrote: Wed Dec 08, 2021 5:44 pm Note: I'm not after get rich quick, investing in private companies is not for this. I'm steady and slow investor with my 3-fund portfolio plus small-cap-value fund (plus the RSUs in companies I worked at in the past). I have been working in public companies / big corps until now, and in the future I will move to private companies, and eventually I will create my own businesses. Hence the interest in private companies.
Why do you want to invest in private companies? The point of pre-IPO companies is that they tend to be high-risk high-potential-reward.

If you want to learn about startups, go work for one. Lots of startups in the Bay Area, lots to learn from the inside. I know startup founders and none of them ever invested in any before starting their own. It is the kind of thing you do after you've had some first-hand success with a startup, have learned the ins and outs and wrinkles, and maybe have enough knowledge to know what to look at when you're considering investing.
I'm already in advisory role of several startups, I'm aware of how they work to an extent.
The order of being in big corps vs startups varies by person. I did too much school in the US, didn't have family here and wealth that the 20-year-old kiddos here had from their parents, who started their company first thing after school. So I had to work in big corp. I know the younger you are, the easier it is to take risks. But not everyone is the same, the situations are different. I created my own luck in big corp, and will move to mid-size companies then to startup world. Check out the average age of successful CEOs, that should give some insight.
Topic Author
ThisJustIn
Posts: 596
Joined: Sun Mar 11, 2018 10:53 pm
Location: Sunnyvale, CA

Re: How to invest in private companies

Post by ThisJustIn »

runninginvestor wrote: Wed Dec 08, 2021 5:48 pm
ThisJustIn wrote: Wed Dec 08, 2021 5:44 pm [
By Vanguard Private Equity Fund, do you mean this one? https://investor.vanguard.com/mutual-fu ... file/VSEQX . Interesting, I didn't know such a fund existed. ER is 0.17%, a little high but ok. So, you are saying, instead of picking companies to invest in and have single point of failure, do you recommend investing in this Vanguard Private Equity Fund? I'm used to investing in funds, my personal portfolio is heavily in 3-fund portfolio plus small-cap-value fund.

Regarding how much is enough, 8MM-10MM is enough for me and my future family. I'm in VHCOL (Bay area), hence the numbers. I want to go beyond this number, not for my own wealth, but because I will be creating my own businesses in the next 5-10 years, and I can use the funds (I know it will take a while to convert) for my own businesses, instead of using my nest egg.

Note: I'm not after get rich quick, investing in private companies is not for this. I'm steady and slow investor with my 3-fund portfolio plus small-cap-value fund (plus the RSUs in companies I worked at in the past). I have been working in public companies / big corps until now, and in the future I will move to private companies, and eventually I will create my own businesses. Hence the interest in private companies.
They may mean VG's recent foray into private equity outside of the normal traded fund.

Vanguard Private Equity
https://pressroom.vanguard.com/news/Pre ... 92021.html

They indicate you need to have both eligibility requirements: Qualified purchaser and accredited investor:

[1] Qualified Purchaser: Includes, among others, natural persons owning not less than $5 million in investments; family offices owning not less than $5 million in investments; trusts not formed to acquire securities offered and each trustee and settlor is a qualified purchaser; and other entities not formed to acquire securities offered that own not less than $25 million in investments.

2 Accredited Investor: Includes, among others, natural persons holding the Series 7, 65, or 82 licenses in good standing, or with a net worth of not less than $1 million, or more than $200,000 in annual income ($300,000 joint annual income with spousal equivalent); family offices and family office clients; 501(c)(3)s, corporations, LLCs, and partnerships not formed to acquire securities offered and with total assets in excess of $5 million; trusts with assets greater than $5 million not formed to acquire securities offered and directed by a sophisticated person; any entity the equity owners of which are accredited investors.

There was also this article recently:
https://www.marketwatch.com/story/as-va ... 1638828074

I think there was a thread on it
So, does this mean, in order for me to invest in VSEQX (https://investor.vanguard.com/mutual-fu ... file/VSEQX), I have to have 5MM+ NW, and 2MM (which is >1MM accredited investor limit) is not enough?

How does Vanguard even check whether I'm a qualified purchaser with NW 5MM+?
retire2022
Posts: 3286
Joined: Tue Oct 02, 2018 6:10 pm
Location: NYC

Re: How to invest in private companies

Post by retire2022 »

ThisJustIn wrote: Wed Dec 08, 2021 6:10 pm
By Vanguard Private Equity Fund, do you mean this one? https://investor.vanguard.com/mutual-fu ... file/VSEQX . Interesting, I didn't know such a fund existed. ER is 0.17%, a little high but ok. So, you are saying, instead of picking companies to invest in and have single point of failure, do you recommend investing in this Vanguard Private Equity Fund? I'm used to investing in funds, my personal portfolio is heavily in 3-fund portfolio plus small-cap-value fund.

So, does this mean, in order for me to invest in VSEQX (https://investor.vanguard.com/mutual-fu ... file/VSEQX), I have to have 5MM+ NW, and 2MM (which is >1MM accredited investor limit) is not enough?
OP

I owned Vanguard Strategic Equity from VSEQX 1996-2020, when I exited it for Vanguard Information Technology (VGT), since inception it was approx 9% annualized and it was 10% for the life of the fund when I owned.

The fund was in my Roth IRA, since my 457 was mostly large caps, I thought my Roth IRA would cover small to mid caps, since VSTAX or VTI was not offered in my 457 plan.

VSEQX was a quant fund and was actively managed fund, there were less choices available for passive mid-smallcap index funds in the early days.
Last edited by retire2022 on Wed Dec 08, 2021 6:20 pm, edited 1 time in total.
dukeblue219
Posts: 4074
Joined: Fri Jan 29, 2016 11:40 am

Re: How to invest in private companies

Post by dukeblue219 »

ThisJustIn wrote: Wed Dec 08, 2021 5:44 pm By Vanguard Private Equity Fund, do you mean this one? https://investor.vanguard.com/mutual-fu ... file/VSEQX . Interesting, I didn't know such a fund existed. ER is 0.17%, a little high but ok. So, you are saying, instead of picking companies to invest in and have single point of failure, do you recommend investing in this Vanguard Private Equity Fund?


VSEQX is not a private equity fund.

I don't know how to be more clear. You cannot purchase shares of large private companies easily, quickly, or with liquidity anymore than you could just walk into a favorite restaurant in your town and buy a partial ownership.

Private businesses are not for public sale.
runninginvestor
Posts: 1796
Joined: Tue Sep 08, 2020 8:00 pm

Re: How to invest in private companies

Post by runninginvestor »

ThisJustIn wrote: Wed Dec 08, 2021 6:10 pm
So, does this mean, in order for me to invest in VSEQX (https://investor.vanguard.com/mutual-fu ... file/VSEQX), I have to have 5MM+ NW, and 2MM (which is >1MM accredited investor limit) is not enough?

How does Vanguard even check whether I'm a qualified purchaser with NW 5MM+?
I think Vseqx is just a mutual fund with an objective to invest in small and kid cap stocks, not private equity . It only had a $3k minimum investment. The other private equity information I linked to is actually infesting in a PE fund.

I have no idea how vanguard reaches out to potential investors. I imagine if you have enough and you keep your profile updated, they would be reaching out to the investor. Or if the investor thought they had enough and wanted more options, they would reach out to vanguard.
luckyducky99
Posts: 415
Joined: Sun Dec 15, 2019 6:47 pm

Re: How to invest in private companies

Post by luckyducky99 »

ThisJustIn wrote: Wed Dec 08, 2021 6:07 pm
luckyducky99 wrote: Wed Dec 08, 2021 5:58 pm
ThisJustIn wrote: Wed Dec 08, 2021 5:44 pm Note: I'm not after get rich quick, investing in private companies is not for this. I'm steady and slow investor with my 3-fund portfolio plus small-cap-value fund (plus the RSUs in companies I worked at in the past). I have been working in public companies / big corps until now, and in the future I will move to private companies, and eventually I will create my own businesses. Hence the interest in private companies.
Why do you want to invest in private companies? The point of pre-IPO companies is that they tend to be high-risk high-potential-reward.

If you want to learn about startups, go work for one. Lots of startups in the Bay Area, lots to learn from the inside. I know startup founders and none of them ever invested in any before starting their own. It is the kind of thing you do after you've had some first-hand success with a startup, have learned the ins and outs and wrinkles, and maybe have enough knowledge to know what to look at when you're considering investing.
I'm already in advisory role of several startups, I'm aware of how they work to an extent.
The order of being in big corps vs startups varies by person. I did too much school in the US, didn't have family here and wealth that the 20-year-old kiddos here had from their parents, who started their company first thing after school. So I had to work in big corp. I know the younger you are, the easier it is to take risks. But not everyone is the same, the situations are different. I created my own luck in big corp, and will move to mid-size companies then to startup world. Check out the average age of successful CEOs, that should give some insight.
Sure, fine. This is not really relevant to your question, or my question. I was trying to guess at why you wanted to do this given that it sounds like money is not the reason. Maybe I was wrong.

So, again, would you care to answer this question?
luckyducky99 wrote: Wed Dec 08, 2021 5:58 pm Why do you want to invest in private companies? The point of pre-IPO companies is that they tend to be high-risk high-potential-reward.
Generally the answer is, as a small fry, you can't invest in privately held startups. But maybe if we knew why you wanted to do this, we could explore a little more.
Last edited by luckyducky99 on Wed Dec 08, 2021 6:33 pm, edited 1 time in total.
User avatar
arcticpineapplecorp.
Posts: 15081
Joined: Tue Mar 06, 2012 8:22 pm

Re: How to invest in private companies

Post by arcticpineapplecorp. »

runninginvestor wrote: Wed Dec 08, 2021 5:48 pm
ThisJustIn wrote: Wed Dec 08, 2021 5:44 pm [
By Vanguard Private Equity Fund, do you mean this one? https://investor.vanguard.com/mutual-fu ... file/VSEQX . Interesting, I didn't know such a fund existed. ER is 0.17%, a little high but ok. So, you are saying, instead of picking companies to invest in and have single point of failure, do you recommend investing in this Vanguard Private Equity Fund? I'm used to investing in funds, my personal portfolio is heavily in 3-fund portfolio plus small-cap-value fund.

Regarding how much is enough, 8MM-10MM is enough for me and my future family. I'm in VHCOL (Bay area), hence the numbers. I want to go beyond this number, not for my own wealth, but because I will be creating my own businesses in the next 5-10 years, and I can use the funds (I know it will take a while to convert) for my own businesses, instead of using my nest egg.

Note: I'm not after get rich quick, investing in private companies is not for this. I'm steady and slow investor with my 3-fund portfolio plus small-cap-value fund (plus the RSUs in companies I worked at in the past). I have been working in public companies / big corps until now, and in the future I will move to private companies, and eventually I will create my own businesses. Hence the interest in private companies.
They may mean VG's recent foray into private equity outside of the normal traded fund.

Vanguard Private Equity
https://pressroom.vanguard.com/news/Pre ... 92021.html

They indicate you need to have both eligibility requirements: Qualified purchaser and accredited investor:

[1] Qualified Purchaser: Includes, among others, natural persons owning not less than $5 million in investments; family offices owning not less than $5 million in investments; trusts not formed to acquire securities offered and each trustee and settlor is a qualified purchaser; and other entities not formed to acquire securities offered that own not less than $25 million in investments.

2 Accredited Investor: Includes, among others, natural persons holding the Series 7, 65, or 82 licenses in good standing, or with a net worth of not less than $1 million, or more than $200,000 in annual income ($300,000 joint annual income with spousal equivalent); family offices and family office clients; 501(c)(3)s, corporations, LLCs, and partnerships not formed to acquire securities offered and with total assets in excess of $5 million; trusts with assets greater than $5 million not formed to acquire securities offered and directed by a sophisticated person; any entity the equity owners of which are accredited investors.

There was also this article recently:
https://www.marketwatch.com/story/as-va ... 1638828074

I think there was a thread on it
maybe it was this thread:
viewtopic.php?t=340389
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
UnhandledException
Posts: 9
Joined: Tue May 22, 2018 2:38 am

Re: How to invest in private companies

Post by UnhandledException »

I work for a startup and we raised from various "syndicates" or investing clubs/groups. The good groups work with each other and you get connected to a lot of (risky) opportunities. As an example see Jason Calacanis' syndicate: https://thesyndicate.com. This is focused on seed/incubation funding of new businesses with the potential for massive growth. You would get exposed to new opportunities every week, I think. I haven't experienced it from the investors side, so just mentioning it in case you weren't already aware of these types of opportunities.
exodusNH
Posts: 10349
Joined: Wed Jan 06, 2021 7:21 pm

Re: How to invest in private companies

Post by exodusNH »

ThisJustIn wrote: Wed Dec 08, 2021 5:44 pm
By Vanguard Private Equity Fund, do you mean this one? https://investor.vanguard.com/mutual-fu ... file/VSEQX . Interesting, I didn't know such a fund existed. ER is 0.17%, a little high but ok. So, you are saying, instead of picking companies to invest in and have single point of failure, do you recommend investing in this Vanguard Private Equity Fund? I'm used to investing in funds, my personal portfolio is heavily in 3-fund portfolio plus small-cap-value fund.

Regarding how much is enough, 8MM-10MM is enough for me and my future family. I'm in VHCOL (Bay area), hence the numbers. I want to go beyond this number, not for my own wealth, but because I will be creating my own businesses in the next 5-10 years, and I can use the funds (I know it will take a while to convert) for my own businesses, instead of using my nest egg.

Note: I'm not after get rich quick, investing in private companies is not for this. I'm steady and slow investor with my 3-fund portfolio plus small-cap-value fund (plus the RSUs in companies I worked at in the past). I have been working in public companies / big corps until now, and in the future I will move to private companies, and eventually I will create my own businesses. Hence the interest in private companies.
I don't know how old your are or how serious you're being, but $10M of wealth puts you in the 1% category in the US. Even "only" $3M puts you in the top 5%.

Half of the households in the US under age 65 have a net worth of $121,000.

Regarding your private equity queries, the fact that you're confusing that Vanguard mutual fund as being a private equity fund indicates you're probably a bit too early in your investing career to invest in PE.

I don't mean that as an insult. I am not ready to invest in PE. (And there's not a lot of good evidence that PE gives you a much better outcome than the boring index funds.)
FraserFir
Posts: 68
Joined: Sun Dec 05, 2021 9:07 am

Re: How to invest in private companies

Post by FraserFir »

If I was desperate to invest in a private company I might poke around and see if there's anyone around trying to raise capital for a new community bank around you. It's a weird little corner of the money world but start up capital can be low enough they might be interested in your money, especially if the focus is on community banking and they think they can get your deposits too.

(Haven't the slightest how you'd find these folks but they do tend to lurk at local chambers of commerce)
runningshoes
Posts: 231
Joined: Thu Apr 08, 2021 3:48 pm

Re: How to invest in private companies

Post by runningshoes »

Maybe to state the obvious, but there are two (primary) types of investments that go into the private company world;

- Venture Capital - goes into start-ups at the foundational stage of a start-up. You noted that you're familiar with and work with some of these start-ups. I would simply ask the founders at these companies what their funding plans are and if you have an opportunity to invest, do so (of course you need to believe in the model...). In addition, ask them if they know of other companies that are looking for angel investors or if they could direct you to various angel groups. The start-up folks tend to know each other and the broader eco-system, including the funding side.

- Private Equity (PE) firms that buy existing private companies from families/individuals or other PE firms, or spin-offs from publicly traded firms (a division that is no longer strategic, etc.). There are a few hundred PE firms that deal with middle market sized companies and above (say $50 million in revenue and up). The lower middle market (say $50MM - $500MM) firms typically have a healthy mix of investors, both individuals as well as institutions like retirement plans (CALPERS as you're in CA for example), universities/colleges, and so on. There are also smaller firms that deal in the $5 - $50MM range that tend to lean more on private investors, and these companies could be a match for what you're trying to do. You need to sign up with a database such as DealLogic (there are others of course so this is not a reco for a specific service) that provides basic information on these firms so you can sort through all the noise and create an appropriate contact list of the right people (there usually is a bus dev person at these firms) to call and see if they are looking for investment dollars. As there is a glut of money right now, with people looking to do something with cash that is not the stock market or real estate, the PE firms are doing ok so a better avenue is to try and make a personal connection through your network to get you in the door.

Good luck!
Topic Author
ThisJustIn
Posts: 596
Joined: Sun Mar 11, 2018 10:53 pm
Location: Sunnyvale, CA

Re: How to invest in private companies

Post by ThisJustIn »

exodusNH wrote: Thu Dec 09, 2021 3:12 pm
ThisJustIn wrote: Wed Dec 08, 2021 5:44 pm
By Vanguard Private Equity Fund, do you mean this one? https://investor.vanguard.com/mutual-fu ... file/VSEQX . Interesting, I didn't know such a fund existed. ER is 0.17%, a little high but ok. So, you are saying, instead of picking companies to invest in and have single point of failure, do you recommend investing in this Vanguard Private Equity Fund? I'm used to investing in funds, my personal portfolio is heavily in 3-fund portfolio plus small-cap-value fund.

Regarding how much is enough, 8MM-10MM is enough for me and my future family. I'm in VHCOL (Bay area), hence the numbers. I want to go beyond this number, not for my own wealth, but because I will be creating my own businesses in the next 5-10 years, and I can use the funds (I know it will take a while to convert) for my own businesses, instead of using my nest egg.

Note: I'm not after get rich quick, investing in private companies is not for this. I'm steady and slow investor with my 3-fund portfolio plus small-cap-value fund (plus the RSUs in companies I worked at in the past). I have been working in public companies / big corps until now, and in the future I will move to private companies, and eventually I will create my own businesses. Hence the interest in private companies.
I don't know how old your are or how serious you're being, but $10M of wealth puts you in the 1% category in the US. Even "only" $3M puts you in the top 5%.

Half of the households in the US under age 65 have a net worth of $121,000.

Regarding your private equity queries, the fact that you're confusing that Vanguard mutual fund as being a private equity fund indicates you're probably a bit too early in your investing career to invest in PE.

I don't mean that as an insult. I am not ready to invest in PE. (And there's not a lot of good evidence that PE gives you a much better outcome than the boring index funds.)
I'm 37, and I'm serious about the question. All those stats of "$xMM NW puts you in top y%" doesn't work in Bay area, believe me.

"Regarding your private equity queries, the fact that you're confusing that Vanguard mutual fund as being a private equity fund indicates you're probably a bit too early in your investing career to invest in PE." => Wow, insult over insult. I know mutual funds and ETFs, I know they are composed of public companies. I have my public company / mutual fund investment methods intact, and I'm trying to learn more on PE investing in this thread.

"I don't mean that as an insult. I am not ready to invest in PE." => I'm ready to invest in PE, or I think I'm ready, that's what I'm trying to figure out these days.
MarkRoulo
Posts: 1198
Joined: Mon Jun 22, 2015 10:25 am

Re: How to invest in private companies

Post by MarkRoulo »

ThisJustIn wrote: Wed Dec 08, 2021 2:09 pm I'm looking for ways to invest in private companies.

I tried EquityZen last year, I indicated interest in SpaceX, tried to invest by making an offer, but there was no response later on.

Now, I want to revisit this. How do folks invest in private companies (e.g. SpaceX, or upcoming IPO by Discord)?
Try forgeglobal (www.forgeglobal.com)?

Go to their web site and create an account. See what happens.
User avatar
calmaniac
Posts: 1325
Joined: Fri Jan 30, 2015 2:32 pm

Re: How to invest in private companies

Post by calmaniac »

ThisJustIn wrote: Wed Dec 08, 2021 2:09 pm I'm looking for ways to invest in private companies.
How do folks invest in private companies (e.g. SpaceX, or upcoming IPO by Discord)?
My personal preference is to transport back to March 2001 and buy some pre-IPO Google shares on the cheap.

I work for a privately held start-up and so am investing my personal sweat equity in a privately held company (at about $100 per mL). I can't imagine investing in such as an individual investor. There is just too much complexity and too many unknowns about which the private investor will never have a clue.
"Pretired", working 20 h/wk. AA 75/25: 30% TSM, 19% value (VFVA/AVUV), 18% Int'l LC, 8% emerging, 25% GFund/VBTLX. Military pension ≈60% of expenses. Pension+SS@age 70 ≈100% of expenses.
User avatar
arcticpineapplecorp.
Posts: 15081
Joined: Tue Mar 06, 2012 8:22 pm

Re: How to invest in private companies

Post by arcticpineapplecorp. »

1. Why do you want to invest in P.E.?
2. What do you think you'll get from P.E. that you won't get from total stock index funds?
3. Are you going to be o.k. not having ANY access to money you put into P.E. for 10 years?

Have you read my signature below?
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
exodusNH
Posts: 10349
Joined: Wed Jan 06, 2021 7:21 pm

Re: How to invest in private companies

Post by exodusNH »

ThisJustIn wrote: Thu Dec 09, 2021 8:18 pm
exodusNH wrote: Thu Dec 09, 2021 3:12 pm
ThisJustIn wrote: Wed Dec 08, 2021 5:44 pm
By Vanguard Private Equity Fund, do you mean this one? https://investor.vanguard.com/mutual-fu ... file/VSEQX . Interesting, I didn't know such a fund existed. ER is 0.17%, a little high but ok. So, you are saying, instead of picking companies to invest in and have single point of failure, do you recommend investing in this Vanguard Private Equity Fund? I'm used to investing in funds, my personal portfolio is heavily in 3-fund portfolio plus small-cap-value fund.

Regarding how much is enough, 8MM-10MM is enough for me and my future family. I'm in VHCOL (Bay area), hence the numbers. I want to go beyond this number, not for my own wealth, but because I will be creating my own businesses in the next 5-10 years, and I can use the funds (I know it will take a while to convert) for my own businesses, instead of using my nest egg.

Note: I'm not after get rich quick, investing in private companies is not for this. I'm steady and slow investor with my 3-fund portfolio plus small-cap-value fund (plus the RSUs in companies I worked at in the past). I have been working in public companies / big corps until now, and in the future I will move to private companies, and eventually I will create my own businesses. Hence the interest in private companies.
I don't know how old your are or how serious you're being, but $10M of wealth puts you in the 1% category in the US. Even "only" $3M puts you in the top 5%.

Half of the households in the US under age 65 have a net worth of $121,000.

Regarding your private equity queries, the fact that you're confusing that Vanguard mutual fund as being a private equity fund indicates you're probably a bit too early in your investing career to invest in PE.

I don't mean that as an insult. I am not ready to invest in PE. (And there's not a lot of good evidence that PE gives you a much better outcome than the boring index funds.)
I'm 37, and I'm serious about the question. All those stats of "$xMM NW puts you in top y%" doesn't work in Bay area, believe me.
The stats I quoted are for the US. They're accurate. It doesn't mean the money is evenly distributed, but the fact remains that "even" $3M puts you in the top 5% of US households.

You may be surrounded by multimillionaires, but it doesn't make them less rarefied.
jarjarM
Posts: 2511
Joined: Mon Jul 16, 2018 1:21 pm

Re: How to invest in private companies

Post by jarjarM »

ThisJustIn wrote: Thu Dec 09, 2021 8:18 pm I'm 37, and I'm serious about the question. All those stats of "$xMM NW puts you in top y%" doesn't work in Bay area, believe me....
Not really, it just have higher income/wealth inequality once you take out the housing component in the NW calculation.
Topic Author
ThisJustIn
Posts: 596
Joined: Sun Mar 11, 2018 10:53 pm
Location: Sunnyvale, CA

Re: How to invest in private companies

Post by ThisJustIn »

exodusNH wrote: Thu Dec 09, 2021 9:57 pm
ThisJustIn wrote: Thu Dec 09, 2021 8:18 pm
exodusNH wrote: Thu Dec 09, 2021 3:12 pm
ThisJustIn wrote: Wed Dec 08, 2021 5:44 pm
By Vanguard Private Equity Fund, do you mean this one? https://investor.vanguard.com/mutual-fu ... file/VSEQX . Interesting, I didn't know such a fund existed. ER is 0.17%, a little high but ok. So, you are saying, instead of picking companies to invest in and have single point of failure, do you recommend investing in this Vanguard Private Equity Fund? I'm used to investing in funds, my personal portfolio is heavily in 3-fund portfolio plus small-cap-value fund.

Regarding how much is enough, 8MM-10MM is enough for me and my future family. I'm in VHCOL (Bay area), hence the numbers. I want to go beyond this number, not for my own wealth, but because I will be creating my own businesses in the next 5-10 years, and I can use the funds (I know it will take a while to convert) for my own businesses, instead of using my nest egg.

Note: I'm not after get rich quick, investing in private companies is not for this. I'm steady and slow investor with my 3-fund portfolio plus small-cap-value fund (plus the RSUs in companies I worked at in the past). I have been working in public companies / big corps until now, and in the future I will move to private companies, and eventually I will create my own businesses. Hence the interest in private companies.
I don't know how old your are or how serious you're being, but $10M of wealth puts you in the 1% category in the US. Even "only" $3M puts you in the top 5%.

Half of the households in the US under age 65 have a net worth of $121,000.

Regarding your private equity queries, the fact that you're confusing that Vanguard mutual fund as being a private equity fund indicates you're probably a bit too early in your investing career to invest in PE.

I don't mean that as an insult. I am not ready to invest in PE. (And there's not a lot of good evidence that PE gives you a much better outcome than the boring index funds.)
I'm 37, and I'm serious about the question. All those stats of "$xMM NW puts you in top y%" doesn't work in Bay area, believe me.
The stats I quoted are for the US. They're accurate. It doesn't mean the money is evenly distributed, but the fact remains that "even" $3M puts you in the top 5% of US households.

You may be surrounded by multimillionaires, but it doesn't make them less rarefied.
I don't think you understood what I meant. 3MM can make you to top 1% in the US. But in Bay area, you are competing with Bay area COL, Bay area housing prices, so those numbers are invalid within Bay area.
Topic Author
ThisJustIn
Posts: 596
Joined: Sun Mar 11, 2018 10:53 pm
Location: Sunnyvale, CA

Re: How to invest in private companies

Post by ThisJustIn »

jarjarM wrote: Thu Dec 09, 2021 11:46 pm
ThisJustIn wrote: Thu Dec 09, 2021 8:18 pm I'm 37, and I'm serious about the question. All those stats of "$xMM NW puts you in top y%" doesn't work in Bay area, believe me....
Not really, it just have higher income/wealth inequality once you take out the housing component in the NW calculation.
I don't think you understood what I meant. 3MM can make you to top 1% in the US. But in Bay area, you are competing with Bay area COL, Bay area housing prices, so those numbers are invalid within Bay area. The power law of "1% of people have more NW than 99% of people combined" in the US, turns into "0.1% of people have more NW than 99.9% of people combined" in Bay.
Topic Author
ThisJustIn
Posts: 596
Joined: Sun Mar 11, 2018 10:53 pm
Location: Sunnyvale, CA

Re: How to invest in private companies

Post by ThisJustIn »

arcticpineapplecorp. wrote: Thu Dec 09, 2021 9:03 pm 1. Why do you want to invest in P.E.?
2. What do you think you'll get from P.E. that you won't get from total stock index funds?
3. Are you going to be o.k. not having ANY access to money you put into P.E. for 10 years?

Have you read my signature below?
1. Because I'm at a financial point in my life where I have the luxury take more risks. Market can return the average, I already invest in it, SCV tilt (small-cap-value) returns more, and while risk is higher, PE is a hit or a miss, but I want to be on both sides of the table there in the future, both as a startup owner, and startup investor.

2. See 1.

3. See 1.

I read your signature now. I already invest in index funds, a big portion of my NW is already in there. If the Bogleheads forum will sing the same song over and over again, despite the title and content of the topic, then you are probably in the wrong topic.
Valuethinker
Posts: 49038
Joined: Fri May 11, 2007 11:07 am

Re: How to invest in private companies

Post by Valuethinker »

ThisJustIn wrote: Thu Dec 09, 2021 8:18 pm
exodusNH wrote: Thu Dec 09, 2021 3:12 pm
ThisJustIn wrote: Wed Dec 08, 2021 5:44 pm
By Vanguard Private Equity Fund, do you mean this one? https://investor.vanguard.com/mutual-fu ... file/VSEQX . Interesting, I didn't know such a fund existed. ER is 0.17%, a little high but ok. So, you are saying, instead of picking companies to invest in and have single point of failure, do you recommend investing in this Vanguard Private Equity Fund? I'm used to investing in funds, my personal portfolio is heavily in 3-fund portfolio plus small-cap-value fund.

Regarding how much is enough, 8MM-10MM is enough for me and my future family. I'm in VHCOL (Bay area), hence the numbers. I want to go beyond this number, not for my own wealth, but because I will be creating my own businesses in the next 5-10 years, and I can use the funds (I know it will take a while to convert) for my own businesses, instead of using my nest egg.

Note: I'm not after get rich quick, investing in private companies is not for this. I'm steady and slow investor with my 3-fund portfolio plus small-cap-value fund (plus the RSUs in companies I worked at in the past). I have been working in public companies / big corps until now, and in the future I will move to private companies, and eventually I will create my own businesses. Hence the interest in private companies.
I don't know how old your are or how serious you're being, but $10M of wealth puts you in the 1% category in the US. Even "only" $3M puts you in the top 5%.

Half of the households in the US under age 65 have a net worth of $121,000.

Regarding your private equity queries, the fact that you're confusing that Vanguard mutual fund as being a private equity fund indicates you're probably a bit too early in your investing career to invest in PE.

I don't mean that as an insult. I am not ready to invest in PE. (And there's not a lot of good evidence that PE gives you a much better outcome than the boring index funds.)
I'm 37, and I'm serious about the question. All those stats of "$xMM NW puts you in top y%" doesn't work in Bay area, believe me.

"Regarding your private equity queries, the fact that you're confusing that Vanguard mutual fund as being a private equity fund indicates you're probably a bit too early in your investing career to invest in PE." => Wow, insult over insult. I know mutual funds and ETFs, I know they are composed of public companies. I have my public company / mutual fund investment methods intact, and I'm trying to learn more on PE investing in this thread.

"I don't mean that as an insult. I am not ready to invest in PE." => I'm ready to invest in PE, or I think I'm ready, that's what I'm trying to figure out these days.
The poster is trying to help you.

The type of questions you are asking says that this is a new area to you. People are trying to warn you that it is a very difficult area.

"Amount" of money is a pointless discussion anyways. I know people for whom $1m would be a life-changing amount. For others, $1m is their annual bonus (and all they do is complain about taxes and how expensive it is to holiday in xxx luxury ski resort).

I did quite a bit of this, related to my job, in the late 90s and through the tech crash. Quoted investments would have been more successful in the round-- I'd have had more money. It is hit or miss. If you are not directly involved in the management of the enterprise (board seat, etc) then it is basically a trip to the roulette table at the casino. You can have a good business model but financiers who are adept at stealing equity from 3rd party investors (I took horrible dilution on some rounds). Or you can have business models that just don't work out.

Business Schools offer short courses, non credit, in venture capital and private equity. Pay $5k, spend a week in Boston at HBS, etc. Presumably virtual delivery is now the model, given Covid.

Understand how angel investors work. How VCs work. How LBO funds work. Carried interest - the economics of VCs. What the odds are. Understand legal venture capital investor agreements: anti-dilution clauses, VC term sheets etc.

BTW the film The Social Network is quite well researched, if you have not seen it. Barbarians at the Gate is still one of the best non-technical guides to the LBO world.
exodusNH
Posts: 10349
Joined: Wed Jan 06, 2021 7:21 pm

Re: How to invest in private companies

Post by exodusNH »

ThisJustIn wrote: Fri Dec 10, 2021 12:41 am
exodusNH wrote: Thu Dec 09, 2021 9:57 pm
ThisJustIn wrote: Thu Dec 09, 2021 8:18 pm
exodusNH wrote: Thu Dec 09, 2021 3:12 pm
ThisJustIn wrote: Wed Dec 08, 2021 5:44 pm
By Vanguard Private Equity Fund, do you mean this one? https://investor.vanguard.com/mutual-fu ... file/VSEQX . Interesting, I didn't know such a fund existed. ER is 0.17%, a little high but ok. So, you are saying, instead of picking companies to invest in and have single point of failure, do you recommend investing in this Vanguard Private Equity Fund? I'm used to investing in funds, my personal portfolio is heavily in 3-fund portfolio plus small-cap-value fund.

Regarding how much is enough, 8MM-10MM is enough for me and my future family. I'm in VHCOL (Bay area), hence the numbers. I want to go beyond this number, not for my own wealth, but because I will be creating my own businesses in the next 5-10 years, and I can use the funds (I know it will take a while to convert) for my own businesses, instead of using my nest egg.

Note: I'm not after get rich quick, investing in private companies is not for this. I'm steady and slow investor with my 3-fund portfolio plus small-cap-value fund (plus the RSUs in companies I worked at in the past). I have been working in public companies / big corps until now, and in the future I will move to private companies, and eventually I will create my own businesses. Hence the interest in private companies.
I don't know how old your are or how serious you're being, but $10M of wealth puts you in the 1% category in the US. Even "only" $3M puts you in the top 5%.

Half of the households in the US under age 65 have a net worth of $121,000.

Regarding your private equity queries, the fact that you're confusing that Vanguard mutual fund as being a private equity fund indicates you're probably a bit too early in your investing career to invest in PE.

I don't mean that as an insult. I am not ready to invest in PE. (And there's not a lot of good evidence that PE gives you a much better outcome than the boring index funds.)
I'm 37, and I'm serious about the question. All those stats of "$xMM NW puts you in top y%" doesn't work in Bay area, believe me.
The stats I quoted are for the US. They're accurate. It doesn't mean the money is evenly distributed, but the fact remains that "even" $3M puts you in the top 5% of US households.

You may be surrounded by multimillionaires, but it doesn't make them less rarefied.
I don't think you understood what I meant. 3MM can make you to top 1% in the US. But in Bay area, you are competing with Bay area COL, Bay area housing prices, so those numbers are invalid within Bay area.
That is still not true.

Let's say there are 10,000 households in the US with a NW of $10m. For the sake of argument, say that's 1% of the household count.

If you have $10M, you are in the 1%. If they all happen to live in the same town, that doesn't make you any less of the 1% than if they were split up over all 50 states.

Just because 80% of the people with. NW of $3M+ happen to be your neighbors does not mean that they're not in the top 5% of wealth in the US. Keeping up with the Joneses is a thing and can normalize exceptional circumstances.
User avatar
arcticpineapplecorp.
Posts: 15081
Joined: Tue Mar 06, 2012 8:22 pm

Re: How to invest in private companies

Post by arcticpineapplecorp. »

ThisJustIn wrote: Fri Dec 10, 2021 12:48 am
arcticpineapplecorp. wrote: Thu Dec 09, 2021 9:03 pm 1. Why do you want to invest in P.E.?
2. What do you think you'll get from P.E. that you won't get from total stock index funds?
3. Are you going to be o.k. not having ANY access to money you put into P.E. for 10 years?

Have you read my signature below?
1. Because I'm at a financial point in my life where I have the luxury take more risks. Market can return the average, I already invest in it, SCV tilt (small-cap-value) returns more, and while risk is higher, PE is a hit or a miss, but I want to be on both sides of the table there in the future, both as a startup owner, and startup investor.

2. See 1.

3. See 1.

I read your signature now. I already invest in index funds, a big portion of my NW is already in there. If the Bogleheads forum will sing the same song over and over again, despite the title and content of the topic, then you are probably in the wrong topic.
risk is based on need, ability and willingness.

doesn't sound like you have the need.

why take a risk you don't need to take?
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
mikejuss
Posts: 2833
Joined: Tue Jun 23, 2020 1:36 pm

Re: How to invest in private companies

Post by mikejuss »

Don't do this, OP--even though I bet it'll make you feel really cool to tell colleagues and family members that part of your net worth is tied up in private investments. (I know it would make me feel cool.) And if you insist on doing it, use as little money as possible. I appreciate that you want to have this experience and learn from it, and that the Bogleheads aren't going to persuade you otherwise. Just be careful not to lose your shirt.
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
Ramjet
Posts: 1464
Joined: Thu Feb 06, 2020 10:45 am

Re: How to invest in private companies

Post by Ramjet »

arcticpineapplecorp. wrote: Wed Dec 08, 2021 2:12 pm
ThisJustIn wrote: Wed Dec 08, 2021 2:09 pm I'm looking for ways to invest in private companies.

I tried EquityZen last year, I indicated interest in SpaceX, tried to invest by making an offer, but there was no response later on.

Now, I want to revisit this. How do folks invest in private companies (e.g. SpaceX, or upcoming IPO by Discord)?
1. work for the company and hope to get shares before they go public
2. be a venture capitalist and invest in a company you hope to take public
3. be a founder/family member and invest start up capital in exchange for equity.
4. invest in a private equity fund through Vanguard (limited right now to $500k minimum I believe, but Fran Kinniry thinks within a decade or more it might become available to the retail investor).
Does anyone else offer funds like this besides Vanguard?
mikejuss
Posts: 2833
Joined: Tue Jun 23, 2020 1:36 pm

Re: How to invest in private companies

Post by mikejuss »

Ramjet wrote: Fri Dec 10, 2021 7:50 am
arcticpineapplecorp. wrote: Wed Dec 08, 2021 2:12 pm
ThisJustIn wrote: Wed Dec 08, 2021 2:09 pm I'm looking for ways to invest in private companies.

I tried EquityZen last year, I indicated interest in SpaceX, tried to invest by making an offer, but there was no response later on.

Now, I want to revisit this. How do folks invest in private companies (e.g. SpaceX, or upcoming IPO by Discord)?
1. work for the company and hope to get shares before they go public
2. be a venture capitalist and invest in a company you hope to take public
3. be a founder/family member and invest start up capital in exchange for equity.
4. invest in a private equity fund through Vanguard (limited right now to $500k minimum I believe, but Fran Kinniry thinks within a decade or more it might become available to the retail investor).
Does anyone else offer funds like this besides Vanguard?
What is the ticker for this Vanguard fund? I wasn't aware that they offered it.
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
sureshoe
Posts: 2165
Joined: Tue Jan 15, 2019 3:26 pm

Re: How to invest in private companies

Post by sureshoe »

There is never a shortage of companies / people looking for investors. Finding someone to take your money should be easy. Is it a "good" investment is a different discussion. This discussion reminds me a little bit of real estate investing. People want to just throw some money at real estate and get a great return. Those people usually lose money. But, there is no shortage of "real estate investments" out there, I assure you.

The same is true, generally, in private equity. You don't just throw your money at "private equity" and hope for the best. I assure you, there are lots of private investments out there. If I was serious about doing this, and I was the OP, I'd just google "startups" in my city (I did this for kicks). From there, you have an endless list of companies. There will be a startup organization in your city, go to their meetings. In my city, there is literally a "investors" section on their homepage where they're soliciting for investors.

However, as other people noted, unless you have significant assets (and I'm talking in the high double digit millions) - you're just not interesting to any established companies or private equity funds. Take my private company that recently went public - we only had a couple hundred million of revenue, but sold for several billion. Even if someone came to the table to invest $5M at this point it would be a waste of everyone's time, they would be less than a quarter of a percent of the company's worth. And beyond that, any established company is going to have a controlling interest that decides who is allowed to buy shares.

As I'm sure you've googled, there are lots of companies who claim to source for "angel investors" and private companies/etc. But, these are all layering fees and looking to make risk-free money while you take all the risk.

So the point is this > if you want to invest in a private companies, you have 3 options:
1) Throw your money at one of the countless investing services (and likely lose)
2) Have a high net worth and lots of investable assets
3) Find a promising startup

If I was going to invest $1M or less, I would be looking for a promising local startup. I would buy a spot on the board of directors.
sureshoe
Posts: 2165
Joined: Tue Jan 15, 2019 3:26 pm

Re: How to invest in private companies

Post by sureshoe »

Let me put a fine point on just how insignificant $1M is to a private company alongside the risk invovled.

Imagine I have a software company that runs a subscription service (or some such thing). Let's say I'm making $2M in revenue, but currently losing $1M/year. This company might be worth $20M depending on valuation/multipliers. So for a $1M investment, you might get a 5% ownership in a company that is bleeding cash and not likely to survive.
mikejuss
Posts: 2833
Joined: Tue Jun 23, 2020 1:36 pm

Re: How to invest in private companies

Post by mikejuss »

sureshoe wrote: Fri Dec 10, 2021 8:20 am Let me put a fine point on just how insignificant $1M is to a private company alongside the risk invovled.

Imagine I have a software company that runs a subscription service (or some such thing). Let's say I'm making $2M in revenue, but currently losing $1M/year. This company might be worth $20M depending on valuation/multipliers. So for a $1M investment, you might get a 5% ownership in a company that is bleeding cash and not likely to survive.
Well, someone must be making money in private equity, what with all the big-city guys in suits saying that's what they're in.
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
exodusNH
Posts: 10349
Joined: Wed Jan 06, 2021 7:21 pm

Re: How to invest in private companies

Post by exodusNH »

mikejuss wrote: Fri Dec 10, 2021 8:27 am
sureshoe wrote: Fri Dec 10, 2021 8:20 am Let me put a fine point on just how insignificant $1M is to a private company alongside the risk invovled.

Imagine I have a software company that runs a subscription service (or some such thing). Let's say I'm making $2M in revenue, but currently losing $1M/year. This company might be worth $20M depending on valuation/multipliers. So for a $1M investment, you might get a 5% ownership in a company that is bleeding cash and not likely to survive.
Well, someone must be making money in private equity, what with all the big-city guys in suits saying that's what they're in.
Nobody brags about how much they lost in Vegas.
Post Reply