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.
What are Accredited and Non-Accredited Investors?
An accredited investor is anyone whose income exceeded $200,000 (or $300,000 with a spouse) in each of the prior two years and who reasonably expects the same for the current year. Or it is someone who has a net worth over $1 million, either alone or with a spouse (excluding the value of the person’s primary residence). An even higher bar is the Qualified Purchaser, who is an individual or legal entity with at least $5 million or more in investments.
If you do not meet these criteria, then you’re a non-accredited investor. Although many private and alternative investments are limited to accredited investors, there are a growing number of opportunities that are open to both accredited and non-accredited investors.
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.
Given the risk, why should women consider private investing?
Private investing provides opportunities for portfolio diversification and a very personal investment experience. It also allows us to make world-changing contributions. We can use our growing wealth to support the overlooked and underfunded female and minority-led businesses that we’d love to see thrive. We can also support innovative products and services that are designed from the ground up with our needs in mind, as opposed to having to make do with the feminization of male products. The more we invest in entrepreneurs and businesses that support our values, the more we signal that their products, services, and companies matter and that we do, too.
Be inspired – learn from other women who have embraced private investing
Sylvia Mah, PhD is an active angel investor, entrepreneur, ecosystem builder, and passionate supporter of women-led businesses. She is unabashedly bold in striving to bring female founders to the forefront. The She Invests podcast is just one example of the many activities Sylvia uses to showcase innovative, socially responsible female entrepreneurs. In each episode, she interviews female angel investors about how they got involved, their investment thesis, and elements that have helped them succeed or, sometimes, fail.
Research impact funds
ImpactAssets 50 is a curated list of the top 50 impact funds and fund managers. The list is updated annually, providing an easy way to identify experienced and emerging impact fund managers. Private debt and private equity funds are included.
Those who are seeking additional diversification can also explore the final asset class as they diversify through alternatives.
There are many opportunities to become involved in private investing – through equity, debt, and angel investing. Whether you’re an experienced investor or not, you can learn how to assemble a private investment portfolio you love. Through Invest for Better, you can access training, mentorship, and collaborate with other women to support amazing entrepreneurs. Join us to learn more.