Private Equity Investments

My favourite investing podcast (“Animal Spirits”) did an interview with a new US-based platform for Private Equity investing:

https://awealthofcommonsense.com/2019/09/talk-your-book-investing-in-private-companies-with-equityzen/

Unfortunately you’ve need to be an accredited investor (by SEC), which means:

  • My net worth, or my joint net worth with my spouse, exceeds $1 million, exclusive of the value of my primary residence.

  • My net worth, or my joint net worth with my spouse, exceeds $2.1 million, exclusive of the value of my primary residence.

  • My individual income exceeded $200,000 in each of the past two years and I expect the same this year.

  • The joint income of my spouse and me exceeded $300,000 in each of the past two years and I expect the same this year.

  • I own at least $5 million in investments (as defined by the SEC, available here)

  • I represent a company that (i) owns at least $5 million in investments (as defined by the SEC, available here) and (ii) is owned by two or more natural persons who are related as spouses, siblings, or direct lineal descendants.

  • I am an investment manager who, for my account or the account of other Qualified Purchasers, owns and invests, on a discretionary basis, at least $25 million in investments (as defined by the SEC, available here).

  • I invest on behalf of a business entity, with total assets exceeding $5 million.

  • I invest on behalf of a business entity each of whose equity owners meet one of the criteria above.

Unfortunately, I don’t pass these requirements, but eventually, I will. So I started thinking about learning more about this. Do you guys have any experience with Private Equity? Do you know how to invest in private companies in Switzerland? How to do it effectively and cheaply?

I know that there are Private Equity ETFs, but overall they underperform in comparison to “private transactions” and general public-companies ETFs, so they don’t make much sense.

For early stage startup companies there are platforms such as investiere or sictic that pool smaller investors for fundraising. They probably also have some wealth and or income minimum requirement.

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I own with a friend a company that is now doing well. However starting a company and having it is a rollercoaster and it takes a lot of patience, mental strength, good entrepreneurship, a great team, a co-founder you trust and can work with, a product people really want and pay for and also some luck and good timing.

You cannot buy some of the skills from above with Cash. So a lot of start ups fail even with almost infinte amounts of money.

Me and my partner would never invest in other start ups. It is the same as stock picking. Some win big but most lose. Maybe you have pure luck like Ashton Kutcher, Peter Thiel or 50 Cent with Start up investing. They had success. Maybe invest in them? Even this is not a good idea…

50 Cent: (invested in Vitamin Water)
Coca Cola reportedly acquired Vitamin Water from company Glacéau for $4.1 billion in 2007. The rapper, who was a partner in Glacéau, is rumoured to have walked away with a figure between $60 million and $100 million. (Fun fact: 50 Cent filed for bankruptcy 2015).

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Congrats on the entrepreneurial success!

Yeah, I know that. I’d not invest more than 10-15% of my portfolio in the PE/VC and I’d diversify as much as possible (preferably invest in a market-capitalization-weighted index of startups). But I guess this is not so easy. That’s why I’m asking if anybody has some recommendations or experiences to share with us.

He clearly isn’t a mustachian.

Personally, I would place venture capital in startups in the same risk category as cryptocurrencies and junk bonds. They are a great addition to the highest-risk bit of your portfolio which you can easily afford to lose. I would venture to say that established SMEs which are looking to grow are a lower-risk investment than startups. They already have a proven product, their business models have been tested, they have a customer base and most importantly, you already known whether or not they turn a profit. Historically, Dreyfus Bank’s Swiss industrial index (SEIDU) which tracks mid-sized industrial companies has outperformed the SPI and SMI.

For startups, I’ve found German crowdfunding platform Seedmatch to be a reliable vehicle for small private equity investments. The number of startups available is limited because of their screening process, but otherwise the platform is solid. It also lists SME’s looking to grow. Not all listed projects accept private equity. Some only issue bonds. Some successful Swiss startups obtained crowdinvestment there. I don’t have experience with the US platforms, but from what I’ve seen they have a lot more projects on offer so diversifying may be easier.

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