Update on private equity investment

[corn18]

My best friend referred me to a private equity group and I invested 5% (at the time) of my retirement savings into a startup group developing a new drug. I got in phase I. They have just gotten phase II approval from the FDA and designated a breakthrough drug. No other drug does what their's does. They are doing another round of funding to complete phase III. They expect to complete phase III early next year followed by an equity event. They don't make drugs, they are just a developer. They start a new company each time they develop a new drug specifically to get bought.



I have never included this money in my spreadsheets. So it doesn't really exist. Their last equity event was 20x. That would be bonkers. But just getting the money I put in back would be fine. 20x would be a lot of money.

 

[Markola]

Good luck, OP. I’ve always wondered about how one proves one is an “accredited investor” and to whom in order to participate in such investments. Is there some form or agency one applies to? Do tax-advantage retirement assets and home equity count? I’m clueless.

 

[corn18]

Good luck, OP. I’ve always wondered about how one proves one is an “accredited investor” and to whom in order to participate in such investments. Is there some form or agency one applies to? Do tax-advantage retirement assets and home equity count? I’m clueless.

I just filled out a form that said I had $XX of assets. Don't remember what the $XX amount was but I had plenty in taxable account to qualify.

 

[disneysteve]

Thanks for the update. I’ve wondered how that was going and how you were doing in general. I hope retirement is treating you well.

 

[madatrub]

The SEC has guidelines on what it takes to be an accredited investor.

https://www.sec.gov/education/capitalraising/building-blocks/accredited-investor

NW over 1 mil, excluding primary residence
Income over 200k (single) or 300k (with Spouse) in the last 2 years.

 

[Markola]

^^^Thanks. So home equity is out but nothing I saw in the article mentions other assets or whether they can be in a retirement account. I figured some agency would need to declare that a person is accredited and give them a certificate but that doesn’t seem to be the case. The OP makes it sound as though one attests to it with a form to whomever is offering the investment opportunity, no government involved.

 

[Out-to-Lunch]

That SEC link doesn't make it clear if you need to satisfy both criteria or only one criterion. Other articles, such as investopedia, say that you only need to meet any of the criteria.

 

[socca]

... I invested 5% (at the time) of my retirement savings into a startup group developing a new drug...

You might enjoy the book For Blood and Money by Nathan Vardi.

For Blood and Money tells the little-known story of how an upstart biotechnology company created a one-in-a-million cancer drug, and how members of the core team―denied their share of the profits―went and did it again. In this epic saga of money and science, veteran financial journalist Nathan Vardi explains how the invention of two of the biggest cancer drugs in history became (for their backers) two of the greatest Wall Street bets of all time.

 

[corn18]

This is a link to the public release. They have 4 drugs in pipeline right now. This one is closest to market.


https://www.prnewswire.com/news-rel...ergoing-cardiothoracic-surgery-301873635.html

 

[Montecfo]

Good luck, OP. I’ve always wondered about how one proves one is an “accredited investor” and to whom in order to participate in such investments. Is there some form or agency one applies to? Do tax-advantage retirement assets and home equity count? I’m clueless.

Just have to represent that you meet the criteria.

 

[clifp]

^^^Thanks. So home equity is out but nothing I saw in the article mentions other assets or whether they can be in a retirement account. I figured some agency would need to declare that a person is accredited and give them a certificate but that doesn’t seem to be the case. The OP makes it sound as though one attests to it with a form to whomever is offering the investment opportunity, no government involved.

They absolutely can be in retirement accounts. I've done scores of private equities/angel investments and have only once been asked to prove I have over $1 million in assets excluding my house.

You can either have the assets, OR the income.
Basically, it is all self-certification.

 

[Markola]

^^^^^^ Thank you for clarifying. I’ve always assumed incorrectly that one has to convince the SEC to let one into the cigar smoke and martinis-filled Accredited room.

 

[kyzymurgist]

I have 15% of my savings invested in Alternatives with a max of 3% in any one investment. Most of these required Accredited Investor status and in all cases the sponsor required documented proof rather than just self attesting. For me that was PDF copies of IRA and 401k statements. Fairly easy process overall.

I wish I could say all these investments were profitable but unfortunately, one went south several years ago with fraud involved and ongoing litigation. I suspect it will be many more years until I can write this off.

 

[GaryInCO]

I investigated an investment (but didn't jump) that required independent verification. They worked with Accredited.AM, which was very straightforward. Just document your assets to the company, they verify, and you're accredited.

 

[DrRoy]

A bit of a lottery ticket.

 

[Koolau]

A bit of a lottery ticket.

In phase II, you're right. IIRC that's about a 1/10 play. But by the time you're in phase III it can be as high as 90% success. Don't quote me on the numbers, but I think that's about the right ratios. YMMV

 

[Singletrack]

Good luck, OP. I’ve always wondered about how one proves one is an “accredited investor” and to whom in order to participate in such investments. Is there some form or agency one applies to? Do tax-advantage retirement assets and home equity count? I’m clueless.

I hold several PE investments. Some are big outfits (Carlyle, Blackstone, etc.); others are smaller real estate investments. In some cases, all I have had to do is to execute an AI certification; in others, the PE groups have requested a letter from my CPA or attorney stating that I am an AI. You can imagine the excitement a CPA or attorney has around signing such a letter. I didn't even go down that rabbit hole; rather, I shared an account statement with the PE group to demonstrate AI status.