Private Equity

[moneymaven]

I have an opportunity to invest in a private equity deal without having to be an accredited investor. I'd rather not go into specifics here but appreciate any insights as to what I should be looking for in the deal or to become cognizant of.

[swamp]

That's a little broad to be able to give you any relevant advice. 

[moneymaven]

Feb 21, 2016 19:50:58 GMT -5 swamp said:

That's a little broad to be able to give you any relevant advice. 

Fair enough. Happy to answer questions but there are things I'd probably not disclose for my privacy.

[Ryan]

Why don't you just lay out the info you are comfortable saying instead of having people ask questions to get more details.

[moneymaven]

Offer is through my employer, more specifically the parent corp.

There is a minimum contribution which is within my risk tolerance.

The private equity group works with mature entities. They have profitable experience in my industry.

My investment is illiquid and will be tied up for 3-7 years. I have hundreds of pages of info to read through. So is my advisor. My tax guy is also reviewing.

This is entirely uncharted territory for me so I am not sure what to be looking for.

[swamp]

CAn you afford to lose the money?   What's the potential payoff?  

[moneymaven]

Yes, especially given my age. Potential payoff is between 50-200% of my investment.

[Aman A.K.A. Ahamburger]

Feb 21, 2016 20:08:36 GMT -5 moneymaven said:

Offer is through my employer, more specifically the parent corp.

There is a minimum contribution which is within my risk tolerance.

The private equity group works with mature entities. They have profitable experience in my industry.

My investment is illiquid and will be tied up for 3-7 years. I have hundreds of pages of info to read through. So is my advisor. My tax guy is also reviewing.

This is entirely uncharted territory for me so I am not sure what to be looking for.

Seems like you are looking in the right places.

With private equity it's all about track record. How many exits do they have? What structures are their other deals? Have they had cash flow problems?(This can be a sign they are "robbing Peter to pay Paul") You also want to make sure the firm has their books audited, it should list their auditor somewhere on their website or information handout.

Working with companies past the start up phase is a good sign, that's for sure. Working other deals within the same industry is also a plus.

Remember, the biggest reason for accreditation is because it could take longer than the seven years. Lots of people think that accredited investments are set up so it's the rich helping the rich, when in most cases it has more to do with the fact the firm doesn't want to deal with people trying to get their money back before the deal exits.

Has the firm ever missed exit targets? Have all the deals they worked on been proven successful? Have they ever had a deal fall apart due to unforeseen circumstances? What would happen to the deal if we hit a major economic crisis?

Having your advisor look it over is a good idea(although don't be surprised if they think it's a bad deal..) Having the accountant look it over is even better.

As always, the bigger the risk, the better the potential return. Happy investing.

[Ryan]

I wouldn't do it. You lose access to the money, you probably are getting short end of the stick, and your already have enough risk since you are employed by the company.

[Aman A.K.A. Ahamburger]

The biggest thing to keep in mind is that this is super high risk, without a doubt. Once that money is in there, you won't see a dime until it exits(and there is nothing you can do about it). I have seen land deals that were supposed to exit in seven years, that ended up being over 20. Not saying this will happen here, you just have to know the 3-7 years is simply a guess.

[tyfighter3]

swamp said," Can you afford to lose the money?"  That's the Question you want to ask yourself. Plus see if you could be asked to pay your share of hidden cost at a later date. Do your DD.

[moneymaven]

After reviewing it with my advisor and CPA respectively, I decided to do it. I can afford to lose the money if it all goes south, there are clear terms about the investment if I leave the company for any reason, and the greater the risk, the greater the reward. I may never have another opportunity to partake in a private equity deal, so carpe diem! If I remember and YMAM is still around, I'll post an update when this exits.