You know you’ve made it in the business and investment world when you can become a Venture Capitalist. As I watch Shark Tank on TV I always wonder it would be like to have an excess amount of capital and managerial expertise to invest in start ups and make a killing in the long term.
What is Private Investing and Why is it compelling?
There is something exciting about investing in private companies at all stages in their development. Whether you are an angel investor, venture capitalist or a private equity firm, there is something exciting about making investments that are not publicly traded.
If you are a long-term investor like I am, private companies are right up your alley. Private companies can be managed better for the long term because they are not in the hands of Wall Street focusing on quarterly results and short-term expectations.
There are a few downsides to making private investments. It is very capital intensive, highly illiquid and your money will be tied up for a long time to make a proper return on your investment. In addition, private investments can be very risky especially at earlier stages in their development. Approximately 40% of angel investments fail, but as a company reaches its later stages it becomes less risky. The later stages of development are when private equity firms begin to make their investments and often transition many private firms to publicly traded companies.
However, your ability to make significant returns over the long-run is strong. Earnings can be paid directly to the owners and you can have a larger role in the decision-making process at the firm with large ownership stakes.
The ability to provide managerial and operational assistance to your investments is a very exciting component to me. You get the feeling of more control over your investment as opposed to having a more passive approach investing in public companies.
Investing in private companies are usually reserved for wealthy individuals because they can handle the illiquidity and risk that is involved in making private investments. In addition, they usually have a lot of managerial and business experience which is important because they can add value to the company they have invested in. Therefore, for me to realize my dream of becoming a venture capitalist, I must develop a strong track record in business and become wealthy.
My Plan to Become a Venture Capitalist
- Build my professional reputation and experience in the financial services industry within a corporate finance function
o Understand the entire company, industry and corporate finance function at a mastery level
- Network and develop relationships with many seasoned professionals in the field and learn as much as you can from them
- Develop my own venture on the side to learn how to run a business from the ground up and gain some entrepreneurial skills
- Become a master investor across various asset classes
- Save as and invest as much money from the earnings from my corporate job and side venture to build wealth
- Join an angel investor organization or venture capital investment group
- Make some killer investments in private companies