Capital at risk. There is no guarantee of any return. Private company investments are illiquid which means you may not be able to get your money back when you want to.
Guide to private business investment
Professional investors worldwide have been selling UK stocks at the fastest rate since May 2016, as they look to rebalance their books ahead of the impending Brexit deal - or lack thereof.
This rebalancing can be seen clearly in recent research from Bank of America Merrill Lynch, which revealed that some 28% of fund managers now hold less than the market weighting of UK stocks in their portfolios.
One potential avenue for growth is investing in private companies, and such investments should be considered as an integral part of creating a balanced and diverse portfolio.
With continued uncertainty in the US and fears that a no deal on Brexit could impact markets, private company investment provides an asset class that remains uncorrelated to the main markets.
Such investment can also provide a solution to other needs such as income generation, inheritance tax mitigation, Business Relief and reduced rates of Capital Gains Tax (CGT).
The rise of crowdfunding
Crowdfunding platforms offer investors the chance to access a number of seemingly exciting new business ventures.
Generally, the companies on crowdfunding platforms are pre-profit companies seeking relatively small investment amounts. These opportunities are sold as a chance to make a ground-up investment which will take the company on to the next stage and hopefully onto profitability. However, according to data from Harvard Business School, as many as 75% of start-ups fail and with crowdfunding platforms heavily reliant on such businesses, the risks are clear. These platforms do not undertake anything other than the basic levels of due diligence on the companies they offer for investment.
There is another way
Another way of accessing the market is to link up with professional private company investors. These companies do all the background work and provide information to their network of investors on the companies and the investment opportunities. This background work typically consists of the following:
· Meeting with the management team and visiting the site(s) involved
· Speaking to customers and suppliers
· Getting references on the management team
· Engaging lawyers to look at contracts
· Receiving and examining copies of accounts
· Engaging third parties to do an initial report
· Commissioning legal DD to highlight risks with contracts, potential litigation
· Going through a disclosure process – with warranties in the investment agreement
· Agreeing consent rights
The information is then collated into the form of an investment memorandum – giving details of the business, the market, the management team background, financial forecasts and investment returns and projected returns.
There are of course some drawbacks to investing in private companies. It’s rarely possible for an investor to sell at the time of their choosing. Instead, investments are realised by an “exit” arranged by the company or the manager acting for all investors. This tends to increase the price achieved by selling investors but means waiting for the right time.
How do you become part of the investor network community?
The good news is that to join these growing networks is usually free and requires no commitment to invest.
Joining means that you’ll receive notification on the investment opportunities as they’re launched – so you really have nothing to lose by joining.
About Rockpool Investments
Rockpool offers its growing network of sophisticated and high net worth investors direct access to established and profitable private companies. Investors can build a mixed portfolio of growth equity and high yield lending to maximise returns and minimise risk.
The company offers an Innovative Finance ISA so investors can earn tax-free interest. Equity investment qualifies for either the Enterprise Investment Scheme tax reliefs or Investors’ Relief, and the firm also offers inheritance tax mitigation services for individuals and business owners.
It prides itself on finding companies run by proven and passionate management teams, dedicated to making the businesses reach their potential.
As a frontrunner in the market, Rockpool has a reputation for negotiating attractive terms, transparency and guiding management teams towards successful outcomes.
To date, Rockpool has over 3,000 investors and have invested in excess of £350m into 75 companies, providing returns of £57m.