There are a variety of ways to invest in private equity:
- Be someone’s “friends and family”. Keep the amount small (relative to your own wealth and commensurate with their business experience) and be willing to forgive them if they are unable to repay you. The relationship is more important than the deal. Of course, if they don’t repay you, feel free to decline future requests for investment — “I’d love to invest in this new thing, but I still need my money back from the other thing”.
- Be someone’s “angel investor”. This means seed money for someone else’s idea. Usually amounts are less than the other types, but also the risk of not being repaid is very high.
- Join a fundraising round for a startup. This is more money than angel investing, and the risk is still high, but so is the reward. There is usually a minimum amount you must commit to investing in order to join a private equity fund.
To be able to discern a winning team, you need to be familiar with their industry, you need to believe they’ve identified a gap in the market and have a feasible solution, and you need to assess the team’s ability to execute — for example to know their effective barriers to entry and to know their knowledge, skills, experience, and working relationships.
Compass
Return to investment. Return to wealth plans.