Private Investing (Part 1)
This is part one of a three-part content feature on Private Investing. Each month Invest for Better offers a special content feature that may be of interest to our members and our larger network of friends and colleagues.
Private investing can be exciting, a great way to build community, and be highly impactful! When you make a private investment, you could be supporting an individual company or a venture capital or private equity fund. The goals might be to support female entrepreneurs, the coffee shop around the corner from your home, or innovative start-ups in the US or another country. Each investment is unique in terms of financial return and impact.
Private investing can also be quite risky. As a result, these investments were rarely available to non-accredited investors until quite recently. With the passage of the 2012 JOBS Act, which went into effect in 2016, it became much easier for private companies to open their investment offerings to non-accredited investors, who can now participate for as little as $100. Many funds, however, are still only available to the largest investors at very high minimums. To safeguard against potential financial ruin, the SEC placed limits on how much investors can allocate to higher-risk investments in any given year.
Because of the risk, financial experts strongly advise that you invest no more than 5% to 10% of your total net worth excluding your primary residence in this asset class, unless you have deep pockets or have a large appetite for risk. Regardless, you should only invest what you’re willing—and able—to lose. It is suggested that you start small, do your due diligence, and increase your investment sizes only as you gain experience.