Guide to Investing in Private Companies
Investing in Private Companies
Before making an investment, it is important to understand the benefits and risks involved. At Loxley, we assess your current financial portfolio to determine which types of investments will give you the best chance of achieving your goals. We review your investor profile and assess the suitability of each investment you make.
Considerations for the Right Investment
Understanding your investment objectives and aligning them with your investment is the first step in determining the best investments for you to consider. These are the critical components you need consider before making an investment.
Does the investment time horizon fit with your cash needs?
The investment time horizon is the expected time an investor expects to hold a security. Your time horizon is the length of time before you expect to need the funds from your investment; perhaps to buy a house or to support yourself in retirement. An investment time horizon can be affected by the stage (maturity) of the company, the company’s exit strategy and the speed of the company’s growth. If successful, early stage companies typically have a time horizon of between 5 and 10 years.
Growth Investment vs. Income Investment
The financial return of a private capital investment can be categorized as growth or income. A growth investment is made when an investor is looking for the value of the company to grow over time, possibly providing an investor with returns as a result of dividends, a third-party purchase of the company, or eventual inclusion on a public exchange, wherein an investor might sell their securities to another purchaser. This is known as capital appreciation, in which the growth of the initial share price increases and the investor sees a return when they sell their shares at a higher price.
An income investment is where the company is paying a recurring dividend or interest payment to the investor throughout the life of the investment. It is important to review the company’s growth and exit strategy to determine how they plan to produce a financial return for their investors.
Importance of diversification
Diversification is a way to allocate your financial resources across a variety of assets to reduce exposure to a particular asset or risk. The old saying of “don’t put all your eggs in one basket” holds true when practicing this principle. In order to have a balanced portfolio, one strategy is to invest small amounts in many assets rather than a larger amount in a few, by doing this, you increase your chances of picking successful companies and.
How much risk should you be taking on?
Understanding the relationship between risk and return is critical to private company investing. In general, higher risk investments have higher potential returns. Higher risk investments can also carry higher risk of failure including the risk of losing the entire investment. When deciding what level of risk is right for you, it is important to consider your goals and to ensure that you have sufficient resources to withstand the loss of the investment.
Your Opportunity and Benefits
Before Loxley, investments in private companies were restricted to high net worth individuals and family and friends of the company’s management team. Through Loxley, Canadians from coast to coast can now become owners in private companies and diversify their investment portfolio with companies that are considered to have the potential for some of the highest returns of any investment opportunity.
Investing in private companies that share your values allows you to influence the direction and growth of different industries. Investing in revolutionary businesses at an early stage gives you the opportunity to be part of the “next big thing”.