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Private purchases of shares in non-publicly traded companies are riskier but can yield higher returns. Venture capitalists seek out small private companies for investment, while small businesses turn to them for growth funding. Private purchases require more money and expertise, but online marketplaces are emerging to match investors with private companies.
A private purchase occurs when an investor buys shares of a private business or company. Shares of private companies are not publicly traded and therefore are not easily bought by anyone other than experienced and savvy investors. A private purchase can be riskier than buying public stocks for a number of reasons: private stocks are generally less liquid; it is more difficult to assess and can be issued by smaller companies that have less stability than larger public companies. For such reasons, investors who buy private stocks generally earn higher returns on their investment.
Making a private purchase is difficult, if not inaccessible, for all but professional investors and venture capitalists. Venture capitalists look for small private companies that they believe will be successful. These transactions are not traded on a stock exchange, but are done privately, often with the help of a broker. Such investments can reap great rewards for investors, who often make more profit on a successful private purchase than on a public one. They also tend to receive higher compensation for their investment, since private purchases are associated with higher risk.
Small businesses, by contrast, turn to venture capitalists because they often need money from investors to grow their operations. Many companies want the money that an initial public offering (IPO) would provide them, but don’t have the financial stability to withstand the transition from a private to a public company. This puts small private businesses in a bind; They can’t access the market money that public companies can access, so they have to look elsewhere for investors’ money. That sets the stage for a private buyout, where private companies and investors hope to scratch each other’s backs.
It takes a lot of money to make a private purchase, and unless you’re in the right circles, many just don’t have the ability to hunt for deals. On public exchanges, it’s easy for anyone to go online and see the latest price fluctuation in a stock and, if they’re so willing, choose to buy a few shares. However, private purchases generally require more than buying a few shares; These purchases often require the purchase of something more like a large chunk of a company’s stock. For those who think they have the money to invest in a private buyout, but lack the know-how to set up such deals, online marketplaces have begun to help match new investors with private companies looking to sell shares. Such markets, it should be noted, do not make transactions cheaper; they simply help widen the playing field.
Smart Asset.
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