By Ryan Prete, Sep 27, 2023
Investing in the private markets is not much different than studying for a test, deciding which car you want to buy, or in what city you’d like to purchase your first home. Every investor has different interests, needs, goals, and exit plans for their money. Due diligence is always crucial when it comes to investing, but even more so when investing in the private markets.
Firstly, private market investments lack the transparency of public markets, making it essential to conduct thorough research to mitigate risks. Investors must delve deep into the target company’s financial health, management team, market positioning, and growth prospects. Secondly, due diligence helps investors assess the legality and compliance of the investment, ensuring it aligns with regulatory requirements. This safeguards against potential legal troubles and reputational damage. And Thirdly, private market investments are illiquid and often require a long-term commitment. Proper due diligence aids in selecting investments that align with one’s risk tolerance, financial goals, and time horizon.
Where Linqto Stands Out: At Linqto, we offer a library of investment resources, original blogs, and company news for members to thoroughly conduct their due diligence before making an investment. Linqto always has skin in the game–we invest in the company’s that are on our platform, so our investments perform well when our member’s investments perform well.
High minimums can present a significant roadblock to first-time private investors. Unlike public market investments, for which there are nearly limitless avenues to invest through, the private markets are accessible to accredited investors in a more limited way. Consequently, private market investment platforms can place large investment minimums on their members, which can range from $10,000 to $100,000, and even higher in some instances.
High minimums exclude many potential investors, limiting access to investment opportunities and potentially concentrating wealth among a select few; this exclusionary practice goes against the principles of democratizing finance and promoting financial inclusion.
Further, exorbitant fees can erode investment returns over time. Even seemingly small percentage-based fees can accumulate into substantial amounts, substantially diminishing the compounding effect of investments. Investors must prioritize cost efficiency to maximize their long-term gains.
Where Linqto Stands Out: Linqto offers $5,000 investment minimums across its portfolio companies; a competitive minimum that is 95% lower than investment platforms with a $50,000 minimum on investments. Further, unlike our competitors, LInqto doesn’t have brokerage fees, management fees, or administrative fees.
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The opposite of over-concentration is diversification, and Warren Buffet said it best when he noted that “Diversification is protection against ignorance.”
Diversification of private market investments is paramount for many reasons. Diversification helps spread risk across different asset classes, industries, and geographical regions. This risk mitigation strategy reduces the impact of poor performance in one area of the portfolio, helping to safeguard capital and maintain overall stability.
Further, a diverse investment strategy can strengthen long-term returns. When one asset class is underperforming, another may excel, smoothing out overall returns and potentially increasing the portfolio’s risk-adjusted performance. A diverse strategy also instills discipline into private market investors, a skill that carries limitless benefits.
Where Linqto Stands Out: With over 40 diverse portfolio company offering, Linqto offers its members some of the top performing private companies in a number of top-tier sectors, including Artificial Intelligence, Digital Assets, Cybersecurity, Space Exploration, Software as a Service, and much more, assisting our members in ensuring their private market portfolio is diverse.
When it comes to private market investing, education is key. Unlike public markets portfolios–many of which follow a “set it and forget it” type of investment cycle–it’s crucial that private market investors keep up on the latest news and fundraising cycles that affect their individual investments and targeted sectors. Reviewing recent news and other forms of private market education is pivotal for investors as it provides insights into emerging trends, allowing investors to identify lucrative opportunities and potential risks in a rapidly evolving landscape. Further, real-time updates on funding rounds, acquisitions, and market shifts enable investors to make timely decisions, optimizing their entry and exit points.
Where Linqto Stands Out: At Linqto, we work tirelessly to provide our members with the latest portfolio company news, market trends, and educational updates on their investments through a library of originally written articles, interviews, investment summaries and other analysis–all for free.
Private market investors must work to not overestimate the returns of their holdings for three important reasons: Firstly, with private market investments typically lacking the liquidity of public markets, private market investors must understand that selling off their investments quickly can be difficult, as illiquidity can require that investments be held for extended periods of time. Secondly, market volatility can affect private investments in a greater way than public holdings, and thirdly, private market investments can be subject to unforeseen challenges, such as delays in achieving exit strategies or unexpected operational difficulties within the invested companies.
When entering the private market, individuals must first understand that they may need to hold their investments for longer than their public holdings.
Share Your Insights: Have thoughts or experiences to share on this topic? Dive into the discussion and leave your insights in the comments section below!
Where Linqto Stands Out: By providing the latest in news and updates surrounding our portfolio companies, Linqto works to keep our members informed, this includes fundraising rounds for our portfolio companies and the latest in valuation and potential IPO plans.
Just as crucial as staying up to date on the latest news surrounding an individual’s private investment portfolio is understanding a company’s exit strategy before investing in the organization. Unlike investing in the public market–which revolves around buying portions of a company that is already publicly-traded–a private market investor is banking on a company holding a liquidity event, which could include a merger, initial public offering, or other events. Understanding a company’s exit strategy provides an investor with clarity on the potential timeline for realizing returns on the investment.
Different exit strategies, such as IPOs, acquisitions, or mergers, can have varying time horizons, and aligning this with an investor’s financial goals and timeline is crucial. Every company’s exit strategy is different, but by understanding a given strategy, investors can gauge the alignment between their own investment objectives and the company’s plans. If an investor seeks liquidity in the short term, but the company’s exit strategy is long-term, it may lead to a mismatch in expectations.
Where Linqto Stands Out: At Linqto, we want our portfolio companies to perform well, and meet their exit strategies. We invest alongside our members, meaning that with skin in the game, it behooves us to understand the exit strategies of our portfolio companies, meaning that we provide updates, news, and other useful information to our members as we receive it.
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Private market investors should exercise caution and avoid relying solely on past performance when making investment decisions. Past performance is not always indicative of future results, especially in dynamic and evolving markets. Companies can face changing market conditions, shifts in management, or unforeseen events that may impact their future performance.
Relying solely on past performance can lead to a biased investment approach, overlooking emerging opportunities or undervaluing companies with strong growth potential but limited historical data. It may also result in overvaluing companies that have experienced temporary success without considering long-term sustainability.
Where Linqto Stands Out: Our experienced team never stops working to bring trailblazing private companies to our platform. We don’t just analyze past performance, as we tediously gauge and measure how our portfolio companies could perform in the future, always offering our members formidable companies with a promising exit strategy and forward-looking agenda.
In conclusion, steering clear of these potential pitfalls, such as inadequate due diligence, overly optimistic projections, and lack of diversification, is crucial for safeguarding one’s investments. The importance of a well-informed strategy, prudently assessing risk, and staying attuned to market trends cannot be overstated. By heeding the warnings provided here, investors can fortify their decision-making processes, enhancing the likelihood of success in the dynamic and often complex realm of private markets. As the investment landscape evolves, a commitment to diligence, adaptability, and continuous learning will be instrumental in navigating the challenges and reaping the rewards that private markets can offer. Have thoughts or experiences to share on this topic? Dive into the discussion and leave your insights in the comments section below!
This material, provided by Linqto, is for informational purposes only and is not intended as investment advice or any form of professional guidance. Before making any investment decision, especially in the dynamic field of private markets, it is recommended that you seek advice from professional advisors. The information contained herein does not imply endorsement of any third parties or investment opportunities mentioned. Our market views and investment insights are subject to change and may not always reflect the most current developments. No assumption should be made regarding the profitability of any securities, sectors, or markets discussed. Past performance is not indicative of future results, and investing in private markets involves unique risks, including the potential for loss. Historical and hypothetical performance figures are provided to illustrate possible market behaviors and should not be relied upon as predictions of future performance.
Ryan is a financial writer for Linqto, known for his original blog content, articles, and other works. He previously worked as a financial writer at PitchBook Data, where he covered private equity, and as a reporter for Bloomberg in Washington D.C.,where he reported on tax policy. Ryan has also reported on cybersecurity policy for Inside Washington Publishers. His work has been featured in The Wall Street Journal, Axios, Yahoo News, and Reuters. He is a graduate of the University of California, Santa Barbara.
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1 Comment
Good commentary on the 7 items. Well thought out and presented. Thank you