4 Quick Tips For Getting Started In The Wild World Of Private Equity Investment

20 April 2015
 Categories: , Blog

Some companies join public trading groups like the NASDAQ exchange to get investment money, while others choose to skip the extra work and raise money through the channels of private equity. Changes in investment regulations finally opened up this type of equity to small-time investors in 2014. If you're a seasoned investor who's ready to enter a brand new world of spending and earning, try these tips to ease into a market that is likely still unfamiliar to you.

Prepare for Delayed Returns

When you're trading on the stock market, you can invest in a company in the morning and unload that investment by the afternoon if you like. Private equity investing takes a lot more patience - your money gets locked into the fund for an average of five to 10 years, although you'll get some returns before the end of the time period. This means you need to take a long-term approach to avoid losing money by picking companies that are rising now but might falter in a few years.

Diversify in a Single Industry

Don't stick to just one equity firm or you could end up with nothing to show for your investments. On the other hand, don't spread your attention over dozens of different industries either. Pick a handful of firms focusing on an industry you already know and understand for the best returns.

Avoid Companies with Strict Deadlines

Some firms are rushing to fill their fund up for a specific purpose because a filing or bankruptcy deadline is nearing. While these funds often come with lower buy-in requirements, they're also riskier because the firm might not do enough research into the company before sinking the cash into it. Stick with more relaxed and on-going dealings so you also have plenty of time to research the opportunity instead of rushing into a deal that backfires.

Get in Early

Finally, prepare to spend plenty of time hunting down a good opportunity as it's first announced to the public. The best firms and their funds fill up extremely quickly, and almost all private equity deals include limits on how much money can be raised. Some funds fill up in a matter of days after opening, so keep your eyes open for new opportunities at all times.

You'll also need quite a bit of money to join the private equity investment world. While you can start playing the stock market with a few hundred dollars in your pocket, you'll need six or seven figures to join private funding operations. The high returns make it worth all the extra work for the dedicated individual investor.