Why invest in emerging private companies?
5 reasons to back businesses at SME stage
Successful investing isn’t just about finding the right company, it’s about getting in – and getting out – at the right time. Some investors are under the misconception that waiting until a company goes public is the best time to buy-in, as they are an established business with a proven track record by that point. However, while the risk might be lower, the rewards can be too.
In order to maximise profit opportunities, savvy investors are looking to emerging private companies; brands with a great product or concept, who need access to capital to reach the next level of development. And WeOwn focusses on finding just this sort of organisation.
If you’re unsure whether you want to back businesses at SME stage, take a look at these five valuable reasons to invest in emerging private companies…
1. They offer high growth potential
Catching a private business at a relatively early stage in its development is a great opportunity to be part of the ‘next big thing’ before everyone else knows about it.
Uber, Deliveroo, SkyScanner, Gousto and Snapchat didn’t exist 10 years ago. Some of these companies have now gone public, but the growth they are capable of since launching an IPO is relatively small compared to what they achieved as they scaled up from being a successful SME; double or triple-digit growth in many cases.
There is naturally more risk with backing an emerging private company compared to a large enterprise, but on the flip side, the potential for higher returns is greater too. As the saying goes, the early bird catches the worm.
2. You’ve got more options to choose from
The chances of finding the next Uber straight out of the block is relatively low, but there are lots of great opportunities to invest in private companies as there are so many on the market.
Because there are more private companies than public, you have a wider choice of business to invest in. This is a great opportunity to connect with a brand you believe in.
On a personal level, you can find something that aligns with your passions and values, find an industry you know inside-out or a product you’re interested in. Many emerging private companies have a strong focus on social impact or ethical responsibility, which sits well with investors’ consciences.
On a financial level, you can find an investment that works with the rest of your portfolio in terms of sector, risk and company value.
It’s also worth mentioning that the pool of private companies is getting larger, as organisations tire of the onus and complexity of being publicly incorporated. This year so far, US private equity groups have struck deals worth $69.9 billion to take public companies private, and we’re on course for 2019 to be the most active year for take-private transactions since 2007, analysts believe. This trend is good news for investors looking at private sector opportunities.
3. You can get hold of a meaningful stake
This might be more relevant if you’re an angel or seed investor, rather than someone looking to dip their toe in the water, but it’s worth mentioning anyway.
One of the benefits of getting in early with a private company is the chance to secure a sizeable stake in that business. By the time an organisation gets to IPO stage, the amount of equity available and cost per share can make it difficult to secure a worthwhile stake if you want to be a significant shareholder.
Get in early, and the opportunity is there for the taking – although it’s worth bearing in mind that if companies launch further funding rounds, the size of your stake may be diluted.
4. You’re part of something special
The potential for making money is greater in a higher risk, higher reward scenario, but profit is only part of the story. Backing a private company that you believe in early-on gives you the chance to build a relationship with that business, and be part of something special.
If you buy a small number of shares in a large public company, you’re just another shareholder in a faceless organisation. Tap into an emerging brand, however, and you’ll become part of their success story.
Many high-growth companies reward their investors in ways beyond financial success. There are exclusive perks, offers and discounts as their product and service offering expands, and you will be first to know about exciting new developments.
In many private companies, valued investors also get to have their say on how the business develops. These brands tend to be run by small teams, who you can get to know individually, and they are open to feedback.
And when these SMEs grow into something much larger as the result of an injection of capital, you’ll know you contributed to their success.
5. It’s a cost-effective way of investing
As we’ve mentioned earlier, the cost per share can be lower if you decide to invest in a private company rather than a larger public enterprise – but that’s not the only financial benefit.
Find the right platform and you won’t have to pay any fees in order to invest, so everything you want (or can afford) to contribute goes directly into your stake. At WeOwn, not only is our platform free to join, we don’t charge investors any admin or trading fees. It’s just one of the reasons that new people sign up to our community every day.
Where do I find emerging private companies?
Scale-up businesses have a few options when it comes to securing financial backing, and several are choosing WeOwn’s digital investment platform to connect with new investors.
Our platform takes the complexity and costliness out of investing, creating easy, affordable opportunities for everyday investors to secure equity high growth brands.
We’ve recently launched our first investment offer, and we’ll be adding new opportunities to our online portal as they go live. To be first in line to see each offer, register for the WeOwn platform today – it’s free of charge, and the sign-up process is very straightforward.
Join the WeOwn investment platform to get equity in fast-growing private companies.