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Currently, US residents who want to invest in the private market need to have a certain net worth to participate. Under the cover of this exclusive private club is access to investment opportunities, supporting innovation, and extreme risk. As the private market has grown, the types of investment instruments and the complexity of the investment structure has increased significantly. Unlike investing in the public market, investing in private ventures can be complicated and requires an understanding of securities law, tax strategy, and, in many cases, future technology that can only be envisioned by innovative entrepreneurs. The key characteristics of the private market are: • Less company regulation • Limited public reporting requirements, especially for smaller companies • A lack of information symmetry • Only investment professionals, or the ultra-wealthy, can invest (accredited investors) With the changes in technology solutions, the advent of new financial solutions, and a change in the way some founders approach building their companies, these characteristics may change as the private market grows. Dan Gallagher, General Counsel of Robinhood and a former Securities and Exchange Commission (SEC) Commissioner, describes the private market as “a vibrant ecosystem.” Capital is key to growth in a private company, and it can come from various sources — professional individual investors (sometimes called “angel investors”), venture capital firms (VC firms), friends and family, and crowdfunding campaigns. Private equity (PE) is sometimes confused with private company investment. PE firms tend to acquire mature companies and recapitalize and re-organize their targets. PE firms generally aren’t looking to make individual investments alongside other investors. For the purposes of this book, we will mostly focus on non-PE owned companies, although we do discuss liquidity in PE funds. The private market is attractive because investors in privately held companies hope to quickly increase the company’s value, then sell their stakes later through a buyout, trade sale, recapitalization, or listing on a public market via initial public offerings (IPOs).
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