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Investing in a private company
Posted on 6/12/18 at 1:03 pm
Posted on 6/12/18 at 1:03 pm
Quick synopsis: I work for a large insurance broker. Currently privately held. For the first time last week we took on outside private equity money from a publically traded private equity firm. Part of the purpose of that was revealed to us in a letter from our Founder/CEO, which he says was to provide liquidity for employees that are qualified investors to buy equity in the firm. Minimum investment $100k and shares are priced at $1.50.
I have never invested in a private company before. My assumption is that we will not receive annual profit distributions. More than likely, I believe that we will go public in the next 5-10 years.
I hate when people come here an ask open ended questions, but I feel somewhat out of my depth. What are my considerations here?
More than likely I am going to do this because I do think there could be a multiple return if/when we go public.
I have never invested in a private company before. My assumption is that we will not receive annual profit distributions. More than likely, I believe that we will go public in the next 5-10 years.
I hate when people come here an ask open ended questions, but I feel somewhat out of my depth. What are my considerations here?
More than likely I am going to do this because I do think there could be a multiple return if/when we go public.
9
Posted on 6/12/18 at 1:16 pm to mule74
What happens if the company doesn't go public?
Posted on 6/12/18 at 1:28 pm to mule74
Who’s buying? Are the executives throwing every penny they have and can borrow into this offering?
Are you confident with the companies financial position? Are they making good decisions from what you can tell?
I have had several friends go through similar offerings in the past and each one was extremely successful. They were all defense related 80’s/90’s companies, but the tell tale sign was the executives taking out second mortgages to buy stock pre IPO.
Are you confident with the companies financial position? Are they making good decisions from what you can tell?
I have had several friends go through similar offerings in the past and each one was extremely successful. They were all defense related 80’s/90’s companies, but the tell tale sign was the executives taking out second mortgages to buy stock pre IPO.
Posted on 6/12/18 at 1:29 pm to mule74
quote:
I feel somewhat out of my depth.
Then you probably shouldn't do it. Invest in what you know.
That said, the way you profit from it is through distributions, or of course selling your share. Even if it never goes public you can sell your share if you find a willing buyer. It's just much harder to do, which is why going public usually creates great returns.
The major danger is if the founder (and/or his friends) retains a majority stake so that you have no real say in how the company is run.
Posted on 6/12/18 at 1:43 pm to foshizzle
It's just an incredibly illiquid investment, and how are you supposed to get comfortable with the valuation?
Posted on 6/12/18 at 2:26 pm to eng08
quote:
Who’s buying? Are the executives throwing every penny they have and can borrow into this offering?
I think it's likely that this offering will oversubscribe.
quote:
Are you confident with the companies financial position? Are they making good decisions from what you can tell?
We are beating the competition and gaining market share every year.
This post was edited on 6/12/18 at 3:36 pm
Posted on 6/12/18 at 2:53 pm to mule74
Mergers in the insurance industry are not going to slow down. If you think the growth is going to continue, and understand the investment I say go for it.
What niche do yall write in?
What niche do yall write in?
Posted on 6/12/18 at 3:18 pm to anewguy
quote:
What niche do yall write in?
P&C ... 95% commercial lines with some ancillary personal lines and benefits.
Posted on 6/12/18 at 3:49 pm to mule74
Anything specific or just general commercial?
Posted on 6/12/18 at 3:56 pm to anewguy
First off, we're wholesale just so you understand that.
All of our brokers have different specialties. I'm a casualty broker. I specialize in construction, manufacturing and O&G business.
All of our brokers have different specialties. I'm a casualty broker. I specialize in construction, manufacturing and O&G business.
Posted on 6/12/18 at 6:40 pm to raw dog
quote:
It's just an incredibly illiquid investment, and how are you supposed to get comfortable with the valuation?
If you are expert in the field then you can guesstimate a value. That's just the thing about private equity - you aren't competing with Wall Street analysts and hedge funders looking for an edge in a public market. It's private, and so if you are investing in an area where you actually do know something you may have a genuine information edge.
Posted on 6/12/18 at 8:36 pm to mule74
Just remember you are enhancing your risk by doing so but could be a great opportunity and insurance is a fairly safe industry. You know your company.
Posted on 6/12/18 at 9:47 pm to mule74
How big of a company?
One of my big takeaways from BE in law school was to never be a minority equity holder in a closely held company. You open yourself up to all kinds of shenanigans.
One of my big takeaways from BE in law school was to never be a minority equity holder in a closely held company. You open yourself up to all kinds of shenanigans.
Posted on 6/12/18 at 10:27 pm to mule74
Legit private equity firm bought a stake. How big a stake and what valuation compared to the $1.50/share available to the employees.
What % of the company is available to the employees?
Sounds like owners and private equity firms plan on cashing out at some point and want to keep the horses hitched to the wagon pulling hard to the finish line.
Go for it, it is only money.
What % of the company is available to the employees?
Sounds like owners and private equity firms plan on cashing out at some point and want to keep the horses hitched to the wagon pulling hard to the finish line.
Go for it, it is only money.
Posted on 6/12/18 at 10:56 pm to mule74
Step 0 is to get the memorandum (or whatever has been thrown together) in the hands of counsel that frequently does placements.
Posted on 6/13/18 at 10:19 am to mule74
I bought into a private company. Don't believe the cash flow projections / growth projections.
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