🦈 How to Invest in Private Companies

Full transparency — I’ve been investing into and advising several fintech-focused startups for the last two years alongside my business partner, Christian Blackwell.

Specifically, we’ve advise them as how to leverage content creators to help tell their brand story and sell their products. We also provide feedback on their products from the perspectives of both a consumer and content creator.

Here’s a link to the companies we work with.

If you want to invest into VC-backed privately-held companies alongside us on Republic, click this link. 

⚡ Building a Diversified Investment Portfolio

We introduced this idea in this post — The Market is Melting — where I shared the idea of walking through the rungs of a ladder.

In order of priority, the rungs of the ladder go a little something like this:

1. Free money received from your employer through a 401k match

2. Tax-free wealth building that comes with a Roth IRA

3. Traditional investment account

We then ended the post with a second label “How else I’m building long-term wealth,” which is a small list of more aggressive investing tactics. By aggressive, I mean “non-traditional.”

They included the following:

• Entrepreneurship

• Cryptocurrency

• Real Estate

• Angel Investing

Since publishing that post about 10 months ago, I think we’ve done a wonderful job of identifying other non-traditional means of wealth building — while still acknowledging that we’re in a prolonged bear market.

Specifically the following: 

• Arbitrage Investing

• Crisis Investing

• Investment-grade Wine & Spirits

• Venture Capital

But with all of that being said — beyond the brief paragraph I shared with you all in our “The Market is Melting” post about angel investing — we never really expanded upon the concept of angel investing / investing in private companies.

Sure, we walked you all through the startup lifecycle from idea to IPO — but there are countless companies (I’d argue the vast majority of them) that never make it to IPO. These companies instead get acquired along the way — or maybe even just pay out a distribution to their shareholders every year.

That’s what this post is all about.

Sharing with you all the companies that don’t take the traditional “venture capital” route — but find themselves on shows like Shark Tank or on websites like Republic.

⚡ How to Invest in Private Companies

There are three main ways to gain exposure to privately-held companies — let’s walk through each method, its pros and cons, and how I’ve personally invested.

Venture Capital — you invest in a fund

This concept is explained in more detail in the post below.

Although this one might be “sexier,” it also comes with the least amount of control. By simply investing into a VC fund, you’re essentially giving a small group of people full autonomy as to how your money will be invested.

Sure, the fund might have a “theme,” but you’re not specifically choosing the companies you want to invest into. This could be both a good thing and a bad thing — it totally comes down to your risk tolerance and trust in the leaders and decision makers.

In the post linked above, I shared with you all how I was investing a small amount ($500) into the fund that Fundrise is building to capture value between late-stage venture rounds and IPO for tech companies. It’s a very straightforward “theme” and makes a lot of sense to me.

Priced Round — you know the founders

This is incredibly hard.

Just to make sure we’re all on the same page — startups who are clearly on a path toward an IPO raise money through something called “priced rounds.”

Each round has its own characteristics from the perspective of business maturity, typical raise, and typical valuation. I’m not at all an expert in this realm — but we are very experienced with being involved in this process.

How do you personally invest in Figma’s $200M Series E in 2021 before they’re acquired by Adobe (ADBE) for $20 billion?

Well, you likely know the founder or someone high up in the company’s rankings. Or maybe you’re an industry veteran and can be considered a “strategic” investor to add to the cap table.

Pros are pretty obvious — you’re able to invest directly into a company without having to pay a VC fees for facilitating the deals. Cons might be the check size you’re required to write — assuming the company is later-stage, you might be forced to write a massive check to even be considered as an investor.

Having the opportunity to invest in private companies during formal priced rounds is hard — and simply unattainable for the vast majority of people. The only reason we’ve been able to pull this off is because I’ve presented myself as a strategic investor — specifically from the perspective of creator marketing strategies — and we have extensive media / finance / consulting experience that’s valuable for growing fintech and creator economy companies.

You Invest Directly within Republic — a private investing platform

This is incredibly easy, as over $1B in capital — from normal folks like you and me — has already been invested across 600+ companies.

This is the closest thing to Shark Tank that is available for the normal retail investor.

Republic is a private investing platform that allows anyone to categorize, identify, and invest into privately-held companies — alongside 2.5 million other investors.

The platform was built after the 2012 JOBS Act was passed by Barack Obama.

Before the JOBS Act was passed into law, only “accredited investors” were able to invest their money directly into privately-held companies — these are people with $1M+ in liquid assets like cash and stock, or make >$200K / year in salaried income.

However, as part of the JOBS Act — non-accredited investors were finally able to begin investing into privately-held companies because of two major changes:

• Letting startups raise up to $1M via crowdfunding — not to be confused with websites like Kickstarter where people ‘pledge’ their money and do not receive equity for their contributions.

• Expanding “Regulation A” — allowing companies to offer stock without going through the process of registering with the Securities and Exchange Commission.

Now through Republic, anyone can become an investor in private markets and invest directly in vetted startups, real estate, video games, local businesses, growth-stage companies, crypto, music, litigation finance and more.

The biggest “pro” with Republic is flexibility — you’re allowed to choose exactly how much you want to invest, the type of industries you want to invest in, the type of founders you want to invest in, and how often you receive updates for their team.

The only “con” I can think of is the cap they have on total money invested. For example, some of the companies on their platform don’t allow you to invest more than a pre-determined amount. Perhaps you’re a big believer in a company and wanted to invest more than the allotted cap. However, that’s not a big problem and hasn’t deterred my interest.

⚡ Finding the Right Deal for You on Republic

So you’ve decided you’re ready to begin investing into privately-held companies — what’s the game plan?

First, please be considerate of your overall risk tolerance, portfolio structure, and most importantly — your time horizon.

When you invest into a company trading on the stock market you’re given instant liquidity — which means if you want to sell, there’s always going to be a buyer waiting to give you cold hard cash for your shares of stock.

When you invest into privately-held companies, that liquidity simply does not exist. The only time you’re given the chance to sell your stock is when there’s a “liquidity event,” which is when / if the company you invested into gets acquired by a larger company.

Now that we’re on the same page, let’s walk through some of the platform’s tools as well as a few successful case studies.

Filtering for the Perfect Company

There are a lot of companies that apply for the chance to have their business “investable” through the Republic platform — and for good reason. There are over 2.5 million investors on the platform that have deployed over $1B+ in capital — serious investors looking for serious companies building for the future.

Only 5% of companies that apply to be showcased on their platform actually make it to the end — but for the ones that actually do, they’re easily searchable and categorized.

Republic does a great job breaking each live investment opportunity down by sector, the type of technology the company is built upon, how many employees they have, how much they’ve raised from investors in the past, how much revenue the company is already generating, and even by minimum investment size or valuation cap.

Once you make an account, simply navigate to this part of their website to view all of the live opportunities to filter through.

⚡ Successful Case Studies on Republic

Why do we invest? To make more money, of course. Here’s a quick breakdown of a few companies that have raised money from investors on Republic’s platform — then returned a profit to their investors soon after.

Mitte — create your own mineralized water

• Amount raised: $30,000

• Total number of investors: 53

• Return on Investment: 120% annualized

Totle — blockchain asset exchange

• Amount raised: $135,000

• Total number of investors: 217

• Return on Investment: 167% annualized

• Acquired by Coinbase Global (COIN)

Trusst — transforming the delivery of mental health

• Amount raised: $106,000

• Total number of investors: 347

• Return on Investment: 102% annualized

Companies I’ve Saved for Later

Here’s a link to my profile on Republic — and here’s a list of the companies that have peaked my interest and I have saved for later.

Of these opportunities, the one I’m most excited about is Maybe — modern financial planning and wealth management. Seems like a really cool product! They’re in a closed private beta at the moment, but their supplemental information looks really encouraging and I’m excited to try the product.

They’ve already raised $186,000 from 275 investors — with 86 more days of “investment ability” still on the table. Out of these six, that’s definitely going to be the company I invest into!

If you want to join me — create an account, search “Maybe” on Republic, and use code “AUSTIN100” to receive up to $100 in free equity.

Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.