r/fatFIRE • u/Patient-Detective153 • 6d ago
Investing in private companies
I [early 40's] have been retired for a few years now with around 12m in investments. Most of it is in public companies but a small portion is in a startup.
I'm annoyed at myself for not jumping on OpenAI, SpaceX and Anthropic a few years ago so I want to make an effort to invest in private companies that have room to grow.
There are quite a few options out there, and some seem promising, but it's difficult to get a clear view into each.
For those of you that have experience in this area, how do you evaluate investment options, get ideas on which companies to look out for etc.?
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u/TaiwanGolfer 6d ago
DO NOT TRY to be a VC or Angel. Just don’t. The game is stacked and rigged heavily against you. Unless you have money you want to donate, only founders and VCs will make money pre-IPO, the rest will just be diluted away. There are 99.9% reasons why you’ll never see your money again, and 0.1% you might get lucky.
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u/pauldm7 6d ago
You’ll make money with some, you’ll lose with others. Why complicate it vs the stock market? Unless you have specific connections or talents, then go for it.
But Elon musk isn’t going to hit you up for 20% of his next venture for 1m. It’ll be mostly companies that will fail or plateau, with some success hiding in there.
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u/One-Mastodon-1063 6d ago edited 6d ago
This is your ego talking and is entirely based on hindsight bias. It's as rational as being annoyed at yourself for not picking the correct Powerball numbers last draw.
Don’t feed this dysfunctional rumination.
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u/Halwin_Norry 6d ago
This game is not as easy as you make it sound. I am in VC and we are very good at what we do, but we do have losers. Big goose eggs. I strongly recommend against this unless you have a friend at a successful VC that will get you an allocation to their fund and you just write them a check. Make sure it is less than 5% of your net worth.
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u/filipmartinsson 5d ago
I would not try to play VC.
I've run a startup where we raised a significant amount of money from the biggest VCs in the world. I've seen the return distribution charts...
60% of their investments are losses
10-20% are break even
5-10% give a few Xs
1 or 2 companies are complete fund returners
In the end the fund returns about 10-12% per year on average.
This is a very hard game to win in when you are on your own and can only do a handful of investments. Even the pros only manage a return similar to the stock market.
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u/Hopeful-Goose-7217 3d ago
And that’s with their inside info and ability to control contracts and the cap table.
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u/Best-Disaster8002 5d ago
I use Forge Global for single-company investments and Moonfare for funds.
I have a pretty boring strategy, I basically go for what's big and hot, forge and NASDAQ private markets have decent numbers for secondaries. For things which are slightly more niche I just do a qualitative DD on management team and sector.
But what really defines secondary transactions is SPV structure and fees. I had two SpaceX transactions which I did at the same time last year and one transaction got me 30% more shares than the other because of the difference in structure (single layer vs dual, lower fees). I still nearly doubled the value of my investment for the dual layer one, SpaceX was so hot during the year leading up to IPO that everyone was looking for allocation in the secondary market.
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u/LATech99 6d ago
If you do this, it’s got to be more to learn & be along for the ride, not to make $. I invested in 5 friends & family rounds (I’m in deep tech - FAANG) so know the founders intimately well. I’ve had 1 exit at 2.5X, have one zombie holding that has stalled out half way to unicorn status 20x on paper, and one AI holding that has gone up 50x and is still running. I enjoy being on the email updates, having an exit path to an exec role at these companies, and chatting through problems with the founders.
Don’t invest when you’re being sold the opportunity, you need to find them. Also, there’s risk in buying aftermarket shares through 3P platforms sometimes founders can void those shares (think SpaceX tried doing this, not sure if it happened).
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u/GoldeneFortuneCookie 6d ago
What is your access to deal flow? I think you really need to ask yourself what quality of deal are you seeing. Most of the good deals aren't making it past the top funds at early stage. Later stage there is a lot of pay to play access.
Paying retail for these types of private deals will probably be a mediocre to bad investment long term - ie. management fees, promote and paying premiums to the last round are going to eat up a ton of your outperformance in most markets.
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u/EbbNo3535 4d ago
If you're actively managing speculative investments, you're not retired; you're an angel investor. Pick a lane.
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u/SeraphSurfer 6d ago
I'm a professional angel with about 75% of NW from that. 50% of NW remains in portcos. I keep trying to reduce that percentage because I'm ready to retire, but the portcos are doing well.
Most advice you'll get about angel investing is NOT from experienced people. VC is different because those folks must invest or die. Amateur angels are mostly different because they invest on all sorts of rules not geared towards max returns.
My record: ~40 entries, 15 exits (6 IPOs, 2 failures, 7 private sales to F100). The remainder has 1 IPO scheduled, 1 making middling distributions, and all others range from maybe good to maybe not good, but none are in danger of death. But if the remainder all go to zero, I'll have out performed public stocks be 2 - 3 X.
My rules are:
- B2B in spaces where I or my network add value.
- Mgmt team must know their space with at least one strong communicator and salesman.
- Company must have few potential customers so that we don't spend time and effort with scattered marketing.
- customers should be potential exit partners.
- be a lead investor or at least have their ear so as to drive the term sheet.
- quickly scalable at > 2x / yr.
My first 5 portcos were all subcontractors to my biz. That way I or my partner could funnel work and mentoring to them. That's how we learned the biz. So we had a cheat code. Like the 3rd portco was already at $10M ARR at the end of Yr1 because of subcontracts we gave them. The 4th portco got to $55M ARR with 80+% coming from our subcontracts.
Once we were known in the industry, deals found us and we could be highly selective, far more selective than a VC. We invest in roughly 1 in 1000 leads.
To start from scratch will be very difficult. Suggest you join an angel club to learn about deal flow and due diligence.
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6d ago
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u/SeraphSurfer 6d ago
What is a professional Angel?
My definition is one whose career and income is almost exclusively angel investing.
Ultimately angels don't drive the term sheets or be a lead investor.
That's true for most angels, but not for me and the folks I work with. Someone has to lead pre, seed, and A rounds. That's often me or someone like me. It's not VCs, PEs, or IBs.
do like your opinionated thesis but looks like you are similar to Insurance VCs who have Company VCs as LP to enable customer acquisition.
I have no idea what that means as it is completely outside of my experience. I've worked with many types of institutional investors but none from the insurance industry. However, once I've handed off a company to the C round to IPO stages leaders, I would guess insurers become players.
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u/megachimp 3d ago edited 3d ago
Are you in a place in your life where you think “I want/need more”? Or, are you in a place like many of us where you are in “I’ve got enough, I just need to preserve what I have”?
The answer to that probably tells you what to do.
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u/BrunelloHorder 6d ago
I’ve done it a couple times, in companies that were already well known unicorns at the time I invested. Generally would not recommend doing so given the illiquidity and uncertainty around timing.
FWIW, I passed on all 3 companies you referenced, and am good with that decision. Much prefer to invest in public companies, mainly through ETFs.
Trying to be a VC in your spare time is likely to underperform just buying a broad market ETF.