Let’s get this obvious statement out of the way: Investing in the seed/early-stages of a company’s life cycle is very risky. Of the 600,000 companies incorporated annually 12-24 companies will launch an IPO while venture capitalists invest in only .25% of companies reviewed. Some liken it to gambling in Vegas. So why are so many investors attracted to this investment class in light of the risks? The answer is that early-stage investing is a “hits” business. When companies succeed, they oftentimes return many times the initial investment (>10x), overcompensating for the losses, and private equity generates 25% annualized returns if structured correctly (Source: Wiltbank Study – Willamette University).

Leading opinion leaders have provided valuable guidance regarding how to correctly structure private equity portfolios. One such individual, David Rose, a successful Angel Investor (New York Angels) and author of “Angel Investing The Gust Guide to Making Money and Having Fun Investing in Start-ups,” mentions five “keys to success” for investing in early-stage companies:
•    Investing consistently – have 20-25 companies in your portfolio
•    Reserving capital ($’s) for follow-on financings
•    Be Professional in both your due diligence and deal-term negotiation
•    Going to be in it for a decade – illiquid assets
•    Add value to your portfolio companies above and beyond simply money

Equity crowdfunding, which leverages the Internet/Social Media to raise smaller amounts of capital per investor from larger groups of investors, is perfectly equipped to assist self-directed IRA investors with achieving attractive returns in private equity. In context of investing via tax-advantaged accounts, including self-directed IRA’s (investors more likely to use retirement accounts for private equity investing given they cannot touch assets regardless of the timing of exits – fitting for long investment windows), let’s delve into how crowdfunding empowers the “keys to success.”

To read more or download the article, click here.

Image © Can Stock Photo Inc. / alexmillos