Has anyone ever participated in a private offering? We have the accredited investor requirement and $s to invest, but the opportunity is a substantial $ amount--$100k.....which is a scary amount for a usually conservative dollar cost aging indexer....however, the "projected " upside potential though is so good It may be hard to pass on....our situation is mid 40s...nw is $2m after excl payed off home (600k), 529 (300k for 2kids about 10 yrs till college), and cash value plans ($250k)...both work bring in $300k....saving about 100k/yr...target retirement timing is 10yrs or sooner...any thoughts/experiences would be appreciated...thx!
Private investment
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clifp
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Well there are variety of private offerings, some involved real estate, a small number involve oil or gas ventures, some involved financing for existing companies, and finally some are classified as Angel investing.
I've turned down the real estate ones (large commercial building),and not been exposed to the others.
I have been very interested in Angel investing and have in 6 startup individually and about 40 as part of a fund. The fund performed poorly although it came with excellent tax credits which negated much of the lost of 2/3 of the value. The individual investment, one is bankrupt, one is struggling, 3 are too early to tell, and one has returned twice the investment in cash dividends and prospects are very bright for the next 30+ years.
Mead's advice is exactly right, depending on what type of of investment you are doing the most likely return is $0, but the winners can be quite lucrative.
I've turned down the real estate ones (large commercial building),and not been exposed to the others.
I have been very interested in Angel investing and have in 6 startup individually and about 40 as part of a fund. The fund performed poorly although it came with excellent tax credits which negated much of the lost of 2/3 of the value. The individual investment, one is bankrupt, one is struggling, 3 are too early to tell, and one has returned twice the investment in cash dividends and prospects are very bright for the next 30+ years.
Mead's advice is exactly right, depending on what type of of investment you are doing the most likely return is $0, but the winners can be quite lucrative.
This year we are writing off our $40K private investment from 15 years ago. We can use the capital loss but in hindsite, would rather have invested it for past 15 years. I agree with the other post. If you are ok losing it completely, go for it.
As the others noted... it may depend of what type of investment this is and your role in it... active or passive....
As with most things, high risk... high reward... or loss. How much do you know about this investment. Do you understand what would make it soars... or crash? If you are passive, what are the credentials of those controlling it? Don't just focus on the up side unless you know it is a sure thing.
Also look at the bold text above... do you have the stomach for this? Many private opportunities are not very liquid.
Look up "startup bankruptcy" and search the companies where listed on the first page. Did any fly high and then crash? ... don't invest if you can't handle the worst case of these.
Asher Aion
Recycles dryer sheets
My approach has been to earmark a small percentage of my investable assets( about 4%) to what I call 'paying it forward'. No plans to go beyond that amount.
I am invested in 4 start ups with being active in only one. Only one of them has the ability to exponentially grow in my opinion, but it has been fun to watch and be part of something bigger than myself. However, while losing the money would not be good, if will not shrink my ship too much.
I am invested in 4 start ups with being active in only one. Only one of them has the ability to exponentially grow in my opinion, but it has been fun to watch and be part of something bigger than myself. However, while losing the money would not be good, if will not shrink my ship too much.
My ex-husband did and he lost everything he invested (approximately $100K). My ex was not an accredited investor but "we" were. He used "our" tax returns to pass muster. I asked him not to do it. He did it anyway. It was a start up golf course community right before the housing bust. Struggled for years, law suits against the primary developer, changed hands a couple of times, etc. Formally went bankrupt in the last 2 years. It was predictable as this developer had a similar track record with other developments.
As others have said, it depends on what it is. This is venture capital and giving "someone" your money" without a vote or are on the B share list with no voice is very risky. As a friend told me, "if you have no where else to put your money" and can stand to loose all of it", go ahead. Otherwise, steer clear.
I guess I am too conservative an investor to do this. $100K is a lot of money to loose IMHO. Good luck with your decision.
As others have said, it depends on what it is. This is venture capital and giving "someone" your money" without a vote or are on the B share list with no voice is very risky. As a friend told me, "if you have no where else to put your money" and can stand to loose all of it", go ahead. Otherwise, steer clear.
I guess I am too conservative an investor to do this. $100K is a lot of money to loose IMHO. Good luck with your decision.
AnIntentionalRoad
Recycles dryer sheets
I've invested in a half dozen tech startups as an angel investor. Each was between 10k and 35k. Two of them I am on their board of advisors, so I have some insight and slight influence on management.
One was acquired by GoDaddy last year and earned me over 600k, each means all the others could go bankrupt and I would still be way ahead. But, all but one are still operating and doing well.
Here is the thing, though, most private placements are losers. Professional venture investors expect 1/3 of investments to go bankrupt, 1/3 to break even, and 1/3 to do well. But they invest in dozens of deals and simply play a numbers game, with educated guesses on which companies have the best chance to do well.
I would be very careful and recommend insisting on bringing your investment amount down to the 25k range until you have more experience, Also have a good attorney review everything! And expect to not see anything back from the deal for 10 years, if ever.
PM me if you want any more specific advice.
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One was acquired by GoDaddy last year and earned me over 600k, each means all the others could go bankrupt and I would still be way ahead. But, all but one are still operating and doing well.
Here is the thing, though, most private placements are losers. Professional venture investors expect 1/3 of investments to go bankrupt, 1/3 to break even, and 1/3 to do well. But they invest in dozens of deals and simply play a numbers game, with educated guesses on which companies have the best chance to do well.
I would be very careful and recommend insisting on bringing your investment amount down to the 25k range until you have more experience, Also have a good attorney review everything! And expect to not see anything back from the deal for 10 years, if ever.
PM me if you want any more specific advice.
Sent from my SM-T237P using Early Retirement Forum mobile app
I have invested in many real estate related private investments buying limited partnership or membership interests each in the amount you propose. Here are a few of the issues I always consider which list is by no means exhaustive:
1. How well do you know the entity that will serve as the Managing Member or General Partner. As a rule I only invest with people I have known for a long time or done deals with before. I am in the real estate industry. If they lose my money I want them to feel bad about it, to be embarrassed to see me at a club or restaurant and to understand that their failure to me will be made known to others who they may count on in the future. Some guy I met once at a party could care less whether he losses my money.
2. How much money does the person that brought the deal to you have invested PERSONALLY in the deal. It should be at least what he/she is asking from you. If they are not personally in the deal move on.
3. Do you understand the underlying asset and have knowledge of the area it is located in?
4. What is the management fee/promote fee going to the GP or Managing Member. Is it market rate? Yes they are entitled to be paid. They found the deal, they will run the deal, they will finance the deal and hopefully they will sell the asset and return your investment with a gain.
5. What is the Exit Strategy and when? In other words when and how will you get your money back? Will the ownership interest be able to pass through to your estate should you die? Normally there are severe restrictions on transferability. Are you comfortable with them. Do you understand them?
6. Are you being paid income during the term of the investment and what is the internal rate of return. Does it make sense to you.
7. Read every page of the Limited Partnership Agreement or Operating Agreement. If you are not inclined to do this, or believe that you cannot understand it, take a pass. I am focused on among other things the ability of the GP or managing member to make ADDITIONAL CAPITAL CALLS (i.e. ask you for more money) or to dilute your interest. Make sure you are liable for no more than your investment and that you will not be asked to sign any form of Guaranty to a lender. You can go to a lawyer if you like but they will likely talk you out of it by only addressing the risks in a long letter that you will pay for. They have a fear that if the deal fails you will look to them. It is not their money it is your money. You must understand the deal not the lawyer.
8. How much money does the GP or Managing Member have invested in the deal. How likely will they be willing to walk from the investment (and you lose your money). The more they have invested the less likely they will walk.
9. How leveraged will they allow the asset to become. I never want more than 75%. At that point if the asset becomes troubled it is easy to give it to the bank and......you lose your money.
I have been involved in the commercial real estate arena for many years. If you are enticed into the deal solely on the basis of possible returns you are in no better position then when someone walks up to the roulette wheel and is told he can make 35:1 on his money. You must take the time to understand every aspect of the transaction and not base your decision on a Term Sheet or 1-page memo some broker or 1st year MBA student prepares.
Having said all of the above, if you understand the deal and terms of the transaction in detail and still like the proposal, then proceed. Since 2009 I have invested in 8 such deals and all have done well......so far. As others have said, do not invest unless you can afford to lose the investment.
1. How well do you know the entity that will serve as the Managing Member or General Partner. As a rule I only invest with people I have known for a long time or done deals with before. I am in the real estate industry. If they lose my money I want them to feel bad about it, to be embarrassed to see me at a club or restaurant and to understand that their failure to me will be made known to others who they may count on in the future. Some guy I met once at a party could care less whether he losses my money.
2. How much money does the person that brought the deal to you have invested PERSONALLY in the deal. It should be at least what he/she is asking from you. If they are not personally in the deal move on.
3. Do you understand the underlying asset and have knowledge of the area it is located in?
4. What is the management fee/promote fee going to the GP or Managing Member. Is it market rate? Yes they are entitled to be paid. They found the deal, they will run the deal, they will finance the deal and hopefully they will sell the asset and return your investment with a gain.
5. What is the Exit Strategy and when? In other words when and how will you get your money back? Will the ownership interest be able to pass through to your estate should you die? Normally there are severe restrictions on transferability. Are you comfortable with them. Do you understand them?
6. Are you being paid income during the term of the investment and what is the internal rate of return. Does it make sense to you.
7. Read every page of the Limited Partnership Agreement or Operating Agreement. If you are not inclined to do this, or believe that you cannot understand it, take a pass. I am focused on among other things the ability of the GP or managing member to make ADDITIONAL CAPITAL CALLS (i.e. ask you for more money) or to dilute your interest. Make sure you are liable for no more than your investment and that you will not be asked to sign any form of Guaranty to a lender. You can go to a lawyer if you like but they will likely talk you out of it by only addressing the risks in a long letter that you will pay for. They have a fear that if the deal fails you will look to them. It is not their money it is your money. You must understand the deal not the lawyer.
8. How much money does the GP or Managing Member have invested in the deal. How likely will they be willing to walk from the investment (and you lose your money). The more they have invested the less likely they will walk.
9. How leveraged will they allow the asset to become. I never want more than 75%. At that point if the asset becomes troubled it is easy to give it to the bank and......you lose your money.
I have been involved in the commercial real estate arena for many years. If you are enticed into the deal solely on the basis of possible returns you are in no better position then when someone walks up to the roulette wheel and is told he can make 35:1 on his money. You must take the time to understand every aspect of the transaction and not base your decision on a Term Sheet or 1-page memo some broker or 1st year MBA student prepares.
Having said all of the above, if you understand the deal and terms of the transaction in detail and still like the proposal, then proceed. Since 2009 I have invested in 8 such deals and all have done well......so far. As others have said, do not invest unless you can afford to lose the investment.
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I have seen a number of private placements over the years. One basic fact of all of them is that there are enormous commissions and fees for the people that set them up and run them. Everyone of them has unbelievable income projections that, quite frankly, should not be believed These two points should tell you everything you need to know.
The "accredited investor" label is used to flatter the marks of the typical scam. I'd stay far away from these.
clifp
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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100K is 5% of your NW for year I kept my total investment in alternative investments at 5% and recently moved it up to 10%. Even more so that with individual stocks diversification is the key. So I also limit my investments to $25K per round. A lot to times the companies will say we need 50 or 100K as minimum. I stick to my guns and often the companies relent and allow me to invest at the 25K level. If not if you can find 3 other investors who are willing to do 25K you can pretty inexpensively form an LLC and then have the LLC invest.
Travelwanted
Recycles dryer sheets
Excellent. Great insight!
I have done this before and lost, every time.
If you don't need to take the risk, regardless of "potential" return don't do it.
It really is that simple. Take the least risk necessary to meet your goals.
Ed_The_Gypsy
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
No offence intended, but I think someone sees a big "SUCKER" sign on your forehead.
Bored Beyond Belief
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Well said. I personally only invest in these types of deals when there is no outside financing and only if it is a real estate deal. If there is a market downturn (or crash) the managing member would also need to have the philosophy to wait it out. This way I know my capital is preserved. Typically with no financing you would also be looking at lower returns, but not always.
That's not true at all. I'm sure your heart in the right place with the comment and you certainly should be careful in these type of deals but "accredited investor" this is a securities/legal term. Instead of getting into all the detail I'll refer you to Accredited investor - Wikipedia, the free encyclopedia.
Private investment-thx
Belated Thanks for all the responses!!
Updated status is that we will likely pass on this. DW and I both need to be fully on board, which isn't the case. I have a status mtg scheduled w broker tomorrow and will ask questions (incl ones offered here- special thx phil1ben!)...much of the concerns expressed in feedback are shared by us....impression given,of course, is that time is limited to acted and short deadlines aren't ideal making things harder
For what it's worth...Without going into too much detail, the deal is unique in that is is a opportunity to be an equity member/seat on a new federally approved derivatives exchange. It's legit and the approval is a major hurdle....CEO has been in front of congress, wrote part of Dodd frank act, has put together experienced team that have been at this for past 7 yrs- with plans to go live w exchange later this yr...have Identified a very large, but somewhat fragmented, underserved commodity market, have global ties particular w Asian companies who have invested in Separate real estate side of this company...the offering is a regulatory requirement in order to keep the ownership shares %s low...+$30m has been already invested...every exchange ever approved has succeeded...think Atlanta's ICE exch for oil/nat ....comes down to volume of trading....if volume projections are met...it's a winner...have plans for an iPo in future -5+ yrs ...a professional package was assembled including video posts of CEO and key investor to tell the story
Following are responses to questions/comments..thx again for feedback provided!!
-It would be a passive investment
-We can afford to lose the $ outright, but issue is can we sleep at nite/live w loss..it's roughly 1 yr worth of savings...which would be rotten and could delay retirement 1+ Yr
-Have no relationship w broker...he has purchased a share..is likely getting a deal by bringing others in...supposedly down to the wire re avail shares, but who know..
-100k seemed to be firm..but will ask
-What makes this is work is if the market/exchange becomes what it is expected
... If significant commodity industry users and suppliers take adv of the risk mgmt hedging tools the exch offers (futures), as well as investment firms-risk takers jump in...exchange can also sell trading data (think Bloomberg)...track record of exchanges is promising...analogy is to a toll road..key being traffic levels
-it would likely be illiquid for 5+ yrs....we could handle this financially; stomach-wise is the issue
-this isn't my field...but Have finance/investment background- so understand the business plan, just can't validate market projections
- thought about the lawyer/financial review...but see pt regarding them covering themselves; doesn't seem to fit into timeframe...have made. An inquiry w inv professional friend to see if he can offer some verification
-we have no alternatives in mix., so the diversification inv mix argument is good pt, but as mentioned still would be a single company (risk)
- thx for tax comments - hadn't thought much of tax loss potential in worse case
- dividends wouldn't be paid until yr 5...message is will be making $ by yr 3, but plan to invest in a clearinghouse operation which will incr margins and be better for long run
-potential annual return estimate are --$100k dividends
- they could add more finance to further dilute it seemed but will confirm
- no offense taken re the sucker comment....issue is will I feel more of a sucker in couture if this thing is a go
Thanks again and feel free to offer additional feedback!
-
Belated Thanks for all the responses!!
Updated status is that we will likely pass on this. DW and I both need to be fully on board, which isn't the case. I have a status mtg scheduled w broker tomorrow and will ask questions (incl ones offered here- special thx phil1ben!)...much of the concerns expressed in feedback are shared by us....impression given,of course, is that time is limited to acted and short deadlines aren't ideal making things harder
For what it's worth...Without going into too much detail, the deal is unique in that is is a opportunity to be an equity member/seat on a new federally approved derivatives exchange. It's legit and the approval is a major hurdle....CEO has been in front of congress, wrote part of Dodd frank act, has put together experienced team that have been at this for past 7 yrs- with plans to go live w exchange later this yr...have Identified a very large, but somewhat fragmented, underserved commodity market, have global ties particular w Asian companies who have invested in Separate real estate side of this company...the offering is a regulatory requirement in order to keep the ownership shares %s low...+$30m has been already invested...every exchange ever approved has succeeded...think Atlanta's ICE exch for oil/nat ....comes down to volume of trading....if volume projections are met...it's a winner...have plans for an iPo in future -5+ yrs ...a professional package was assembled including video posts of CEO and key investor to tell the story
Following are responses to questions/comments..thx again for feedback provided!!
-It would be a passive investment
-We can afford to lose the $ outright, but issue is can we sleep at nite/live w loss..it's roughly 1 yr worth of savings...which would be rotten and could delay retirement 1+ Yr
-Have no relationship w broker...he has purchased a share..is likely getting a deal by bringing others in...supposedly down to the wire re avail shares, but who know..
-100k seemed to be firm..but will ask
-What makes this is work is if the market/exchange becomes what it is expected
... If significant commodity industry users and suppliers take adv of the risk mgmt hedging tools the exch offers (futures), as well as investment firms-risk takers jump in...exchange can also sell trading data (think Bloomberg)...track record of exchanges is promising...analogy is to a toll road..key being traffic levels
-it would likely be illiquid for 5+ yrs....we could handle this financially; stomach-wise is the issue
-this isn't my field...but Have finance/investment background- so understand the business plan, just can't validate market projections
- thought about the lawyer/financial review...but see pt regarding them covering themselves; doesn't seem to fit into timeframe...have made. An inquiry w inv professional friend to see if he can offer some verification
-we have no alternatives in mix., so the diversification inv mix argument is good pt, but as mentioned still would be a single company (risk)
- thx for tax comments - hadn't thought much of tax loss potential in worse case
- dividends wouldn't be paid until yr 5...message is will be making $ by yr 3, but plan to invest in a clearinghouse operation which will incr margins and be better for long run
-potential annual return estimate are --$100k dividends
- they could add more finance to further dilute it seemed but will confirm
- no offense taken re the sucker comment....issue is will I feel more of a sucker in couture if this thing is a go
Thanks again and feel free to offer additional feedback!
-
MooreBonds
Thinks s/he gets paid by the post
Pay particularly close attention to the financial statements of their operations so far. What have they spent money on? Is it just a cover for them to fly around the country and have hotel rooms and corporate meals expensed for their benefit? How do their categories for salaries/office overhead/other categories sound for the # of employees they have and what they have been doing?
Or have they been fairly decently handling their budgets so far? What is this round of financing going to - fund operations, or just mostly going to the pockets of current shareholders? What is their expected total cost to get this thing up and running, assuming no gov't hurdles? How does that compare to cash-on-hand and projected funding needs?
Or have they been fairly decently handling their budgets so far? What is this round of financing going to - fund operations, or just mostly going to the pockets of current shareholders? What is their expected total cost to get this thing up and running, assuming no gov't hurdles? How does that compare to cash-on-hand and projected funding needs?
OP: Thanks for the follow up report. It's always nice to hear what your ultimate decision is.
I think, you are extremely fortunate, your wife does not want to "invest" in this deal. ( I think that is what you inferred). This investment is more of a gamble then investment. $100K return on $100K investment. Run,
run, away. That Broker, must be a very good salesperson.
I think, you are extremely fortunate, your wife does not want to "invest" in this deal. ( I think that is what you inferred). This investment is more of a gamble then investment. $100K return on $100K investment. Run,
run, away. That Broker, must be a very good salesperson.
clifp
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Actually that sounds potentially very lucrative, so I can understand the appeal. A successful exchange is a license to print money, which is why seats on the NYSE are worth millions and the holding company for the exchange has a a market cap of 20 billion.
Of course it is long way from a start up to get to a 20 billion market cap.
In my experience financial oriented startup are far more lucrative than tech, or biotech. Real engineers and scientist want to make the world a better place where as financial engineering is all about the money. The financial startup I was involved in paid a dividend of 170% of the intial share price this year, so its possible albeit unlikely.
I will also say that 1/2 the time I was under huge pressure to invest quickly it was basically a sales tactic,and 1/2 the time it was because it was such a good deal they didn't have trouble getting investors.
To me the biggest red flags are the size of the investment relative to your net worth, and your lack of relationship with the broker. I've never invested without co-invested with people I've had some experience with. But of course that wasn't really true the first time I wrote the check.
Still at the end of the day Warren's advice on investing is worth considering.
"The stock market is a no-called-strike game. You don't have to swing at everything – you can wait for your pitch." Which is true of investing in general.
Of course it is long way from a start up to get to a 20 billion market cap.
In my experience financial oriented startup are far more lucrative than tech, or biotech. Real engineers and scientist want to make the world a better place where as financial engineering is all about the money. The financial startup I was involved in paid a dividend of 170% of the intial share price this year, so its possible albeit unlikely.
I will also say that 1/2 the time I was under huge pressure to invest quickly it was basically a sales tactic,and 1/2 the time it was because it was such a good deal they didn't have trouble getting investors.
To me the biggest red flags are the size of the investment relative to your net worth, and your lack of relationship with the broker. I've never invested without co-invested with people I've had some experience with. But of course that wasn't really true the first time I wrote the check.
Still at the end of the day Warren's advice on investing is worth considering.
"The stock market is a no-called-strike game. You don't have to swing at everything – you can wait for your pitch." Which is true of investing in general.
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I'm well aware of what an "accredited investor" is from a legal standpoint. From a practical standpoint it is the perfect rube in a financial scam. It's what you have to be to invest in a hedge funds, drilling partnerships or private REITs. Most make lots of money for the principals but for the investors - not so much. Really good deals don't need a mob of commissioned sales people out looking for money from small fish.
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To the OP,
You have a substantially different deal than what I'm used to seeing. My only question is why were you invited to their party? I'm very suspicious of offers of great potential wealth from strangers. A really good deal would have been gobbled up by people close to the insiders.
You have a substantially different deal than what I'm used to seeing. My only question is why were you invited to their party? I'm very suspicious of offers of great potential wealth from strangers. A really good deal would have been gobbled up by people close to the insiders.
Ronstar
Moderator Emeritus
I've been an investor in a private business and also in a rental real estate llc. I've since sold my share of the business and we are in the process of selling off the real estate. IMO, private investments are not good investments for those about to RE. They are generally highly illiquid, and quite volatile. They really can't be counted on as retirement $ until they're liquidated.
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Remember everyone is very good at finding reasons not to do something. My personal philosophy is to be running into the shopping center when all are fleeing.
However, the above comment is on point. You do not have a relationship with the broker. Why then did he call you if this was such a good deal? How many brokers called you to buy shares when Alibaba was going public? I did not get a call and I have a relationship with a brokerage firm. Many things you have written would make me nervous.
As an aside I did get a similar call a few years ago to buy into a derivatives exchange that established spreads on mortgage backed securities. This is a field I have experience in. I passed. Don't know how the investment turned out.
The speed to decide is being explained as the equity seats are running out...when first heard it was 84 of the 100 were taken last week and then 9 more as of friday..... do wonder why "us"....it seems that they are at end of financing and just need to close it out to proceed, so got this broker involved to do so...
Yes, we are lucky in our current "as is" financial situation.
Projection estimate is the share would be worth "conservatively" $2m in 5 yrs and be giving off $100k annual dividends...
Yes, we are lucky in our current "as is" financial situation.
Projection estimate is the share would be worth "conservatively" $2m in 5 yrs and be giving off $100k annual dividends...
