There are two main ways for the average individual to become a private equity investor. Perhaps the easiest way is to find a local company that can use some extra capital and buy in as a partner. This doesn't require that you qualify as an accredited investor -- a person with a net worth of $1 million or more and annual income of $200,000 as an individual or $300,000 in combination with a spouse. The other main way is to join an angel investment group, which is a group of accredited investors who meet to entertain presentations by entrepreneurs seeking investment to start or grow their companies.
Study financial analysis, economics, business management and marketing so you have a good grasp of what it takes to make a successful company. If you are new to private equity investing, an angel group is a good place to learn how more experienced investors choose their investments.
Take a serious look at your finances. You should be able to invest at least $10,000 to $25,000 in a company without worrying whether you will lose your entire investment. Venture investing is not a sure way to riches, in fact, it is more often a sure way to tax write-offs. As many as 50 percent of start-up companies go out of business within their first five years.
Contact the Angel Capital Association for a list of angel investor groups in your area, if you qualify as an accredited investor. Attend meetings of these groups until you find one that appeals to you, then join. These groups generally charge a membership fee that goes to support the administrative activities of the group and rental of a meeting place.
Contact local service providers if you are not interested in joining an established angel group or are not qualified as an accredited investor. Attorneys, accountants, bankers, chambers of commerce and local business associations are excellent sources of introduction to local companies that are seeking start-up or growth capital and would consider taking on an investor-partner.
Take your due diligence seriously. If you are a member of an angel group, you will be expected to help examine the finances and business potential of companies in which you intend to invest. If you are investing on your own, due diligence will fall on your shoulders or you should be prepared to hire an attorney and accountant to help.
Tips
The secret to making good private equity investments is to have a large number of deals to consider. Angel investment groups provide an excellent deal flow because entrepreneurs seek out these groups and apply to present their business plans. One advantage of an angel group is the weeding-out process in which the leaders of the group reject all applicants that do not meet the group's requirements for consideration as investments.
Warnings
Don't overlook investing in a small local business. Many small businesses have loyal customers and produce reliable annual revenues, but need additional investment to expand. A popular local restaurant would not be considered appropriate for most angel groups, but it might be a real money-maker for you if you can provide capital to open another location in a neighboring town.
References
- Angel Capital Association: About Angel Groups
- Entrepreneur: A Guide to Angel Investors
- U.S. Securities and Exchange Commission: Accredited Investors
- Service Corps of Retired Executives: Small Biz Stats & Trends
- Center for Venture Research. "The Angel Market in 2019: Commitments by Angels Increase with Significant Rise in Deal Valuations," Page 1. Accessed Aug. 17, 2020.
- U.S. Securities and Exchange Commission. "Updated Investor Bulletin: Accredited Investors." Accessed Aug. 17, 2020.
- Angel Capital Association. "FAQs for Angels and Entrepreneurs." Accessed Aug. 17, 2020.
- Angel Capital Association. "Angel Capital Association Elects New Members for Board of Directors," Page 2. Accessed Aug. 17, 2020.
Tips
- The secret to making good private equity investments is to have a large number of deals to consider. Angel investment groups provide an excellent deal flow because entrepreneurs seek out these groups and apply to present their business plans. One advantage of an angel group is the weeding-out process in which the leaders of the group reject all applicants that do not meet the group's requirements for consideration as investments.
Warnings
- Don't overlook investing in a small local business. Many small businesses have loyal customers and produce reliable annual revenues, but need additional investment to expand. A popular local restaurant would not be considered appropriate for most angel groups, but it might be a real money-maker for you if you can provide capital to open another location in a neighboring town.
Writer Bio
Victoria Duff specializes in entrepreneurial subjects, drawing on her experience as an acclaimed start-up facilitator, venture catalyst and investor relations manager. Since 1995 she has written many articles for e-zines and was a regular columnist for "Digital Coast Reporter" and "Developments Magazine." She holds a Bachelor of Arts in public administration from the University of California at Berkeley.