What you need to know about investing through Private Equity
Risk
A company funded with Private Equity is not by definition riskier than a publicly traded company. In fact, all companies start out being funded with private equity, before ever being listed on a stock exchange (Initial Public Offering, or I.P.O) and become publicly funded.
The risk comes from the lack of, or less stringent, external control and regulations. The smallest companies are not even obliged to have their accounts audited. Reporting might be less professional, management might be less experienced, cost control might be weaker, etc. But that also means there is more room for creativity, real entrepreneurship and general flexibility.
In order to responsibly invest with Private Equity, the investor itself needs to be more actively involved; be an active shareholder. As manager of your Holding Company, Charon Griffin takes that role of active shareholder very serious.
Valuation
The valuation of your shares is not as obvious as with publicly traded shares. There is no daily price published for you to follow.
Depending on the reporting cycle of the company you invested in, you might see the value of the company once a month, or maybe just once a quarter.
But what is that value based on? Charon Griffin will do its best to make sure it’s at least the correctly calculated intrinsic or equity value. But this is commonly lower than a market value (like a listed share price).
This might cause a problem when you would like to sell your shares (see liquidity), but might also lead to discussions with your tax authorities, who likes to tax you on a certain value.
On the other hand, it might lead to pleasant “surprises” when the company does one day go public (IPO) or is being bought by a third party; at that time the future of the company is calculated into the value.
Liquidity
The shares in a company funded with Private Equity are usually not freely tradable.
The Articles of Association might stipulate that you can only sell your shares to fellow shareholders, or they might have preferential rights to them (“right of first refusal”).
The price at which you can sell your shares is probably a matter of negotiation with your co-shareholders.
And the whole process of selling the shares takes a bit longer, than selling shares on the stock market and involves a lot more paperwork.
And maybe there is no buyer at all (at a “reasonable” or market price), or at least not immediately.
Charon Griffin tries to ease all of this, by being sort of a, so called, market maker, where we can buy your shares and hold them until we find a new private investor for them.