How Do I Invest in a Private Company?

by Nicole Crawford
Both public and private stocks can be part of your investment strategy.

Both public and private stocks can be part of your investment strategy.

Investing in a private company may be a viable option for advanced investors. Although such investments may not be as liquid and transparent as the purchase of publicly traded stock, they do provide benefits. For example, private companies may represent better opportunities for long-term earnings. Public companies often are more concerned with short-term performance and meeting analysts' expectations. Private companies also benefit from fewer reporting restrictions, since they are not required to report to the Securities and Exchange Commission. Investing in a private company is one way to diversify a portfolio, but it can be risky. Consult a financial professional to determine the best investments.

1. Join an angel investment company. Angel investments are newly emerged companies that depend on investments from family, friends and other interested parties. Although angel investments are risky, they offer potential for long-term profit and high returns after they have passed through the start-up phase.

2. Research all private investments thoroughly before you make any commitments. Some private investments may offer more profit than they can actually provide. Because private companies are not bound by SEC reporting requirements, they might provide less documentation to investors and may even be illegal in extreme cases.

3. Invest in mutual funds. Many mutual funds provide investments in private sectors as well as public companies. Since mutual funds provide several investments in a variety of areas, they also help diversify your portfolio. Mutual funds are less risky than putting all your eggs in one basket.

4. Contact companies directly to determine whether they trade publicly or privately, and to find out their stage of maturity and exact investment details. Ask for documentation that details the company's performance and read it carefully before you decide to make an investment.

About the Author

Nicole Crawford is a NASM-certified personal trainer, doula and pre/post-natal fitness specialist. She is studying to be a nutrition coach and RYT 200 yoga teacher. Nicole contributes regularly at Breaking Muscle and has also written for "Paleo Magazine," The Bump and Fit Bottomed Mamas.

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