Private equity investment/crowdfunding platforms have gained significant attention in recent years, offering individuals and institutional investors alike a new avenue to participate in the potentially lucrative world of private equity. These platforms aim to democratize access to private equity investments, traditionally reserved for wealthy individuals and institutions.
Learn what private equity investment platforms offer, their potential advantages and disadvantages, and how to find reputable investment platforms that offer what you’re looking for.
What are private equity investment platforms?
Private equity investment platforms act as intermediaries between investors and private companies seeking capital. They provide a digital marketplace where investors can discover and invest in a variety of private equity opportunities. These platforms may offer the following features:
Access to diversified opportunities
Private equity investment platforms curate a diverse range of investment opportunities across different industries and geographies, allowing investors to access previously inaccessible sectors or emerging markets.
Lower minimum investment requirements
Unlike traditional private equity funds, which often require substantial capital commitments, investment platforms typically offer lower minimum investment thresholds, enabling a broader base of investors to participate.
Enhanced transparency
Platforms strive to provide transparent information about the investment opportunities, including company profiles, financials, growth projections, and risk factors. This transparency empowers investors to make more informed investment decisions.
Streamlined investing process
Private equity/crowdfunding platforms simplify the investment process, offering online account creation, electronic document signing, and secure payment systems, ensuring a seamless experience for investors.
Potential advantages of private equity investment platforms
These are some reasons investors may be attracted to private equity/crowdfunding platforms:
Access and diversification
These platforms unlock access to private equity investing, allowing individuals to diversify their investment portfolios beyond traditional asset classes like stocks and bonds.
Lower capital commitments
Many platforms provide an opportunity to invest in private companies with lower minimum capital requirements, making it more accessible for retail investors.
Enhanced transparency
Platforms often provide comprehensive information and due diligence materials, giving investors insights into the investment opportunities and mitigating some of the information asymmetry often associated with private equity.
Potential for higher returns
Private equity investments have the potential for significant returns due to their long-term investment horizon and ability to actively influence the success of portfolio companies.
Potential pitfalls
While private equity investment platforms have several attractive features, there are also potential risks or downsides to consider.
Higher risk profile
Private equity and crowdfunding investments generally carry higher risks compared to traditional investments, including the potential for loss of capital, illiquidity, and uncertainty surrounding exit strategies.
Limited liquidity
Investments made through private equity platforms often have long lock-up periods, meaning investors may have limited access to their funds for an extended period, typically ranging from several years to a decade.
Due diligence challenges
While platforms strive to provide robust due diligence, investors may still face challenges in evaluating investment opportunities, assessing the quality of management teams, and understanding the underlying risks.
Researching investment platforms
When considering private equity investment platforms, it is crucial to evaluate their legitimacy and reliability.
Trustworthy regulatory and industry organizations have materials available to help when evaluating a potential investment or platform. Here are some places to start:
Retirement Industry Trust Association (RITA) – Check Before You Invest checklist helps you become a more informed investor.
Investor.gov – The Securities and Exchange Commission’s (SEC) Office of Investor Education and Advocacy provides information to help you invest wisely and avoid fraud, providing helpful examples of fraud.
Examples of private equity platforms
Looking for private equity platforms? The Investment District is an online listing of investment providers and opportunities to make it easier for investors to find and invest within their Equity Trust account. Click on each listing to be taken directly to the platform, where you can learn more about the asset provider and its offerings.
These platforms, and potentially others, enable you to use a self-directed IRA to invest. Remember that as the self-directed IRA owner, you direct the investments and are responsible for due diligence.
As Equity Trust Company (“Equity Trust”) is a directed custodian, like any investment, it is your responsibility to conduct your own due diligence before investing and before choosing a provider that is right for you. Equity Trust may, from time to time, establish independent contractor relationships with third-party providers, as provided above, whereby you, as the IRA owner, can have access to third-party providers for services that may be beneficial to you. Equity Trust is not an affiliate of any such provider. Equity Trust makes no recommendation or representations as to any provider and service or the needs generally of any IRA owner or any IRA. Any service available from any provider that offers investment education or advice solely reflects the views of such provider and in no way represents any recommendation or advice from Equity Trust. Opinions or ideas expressed by third parties, their affiliates, and employees are not necessarily those of Equity Trust nor do they reflect their views or endorsement. IRA owners are in no way obligated to purchase services and IRA owners are free to choose a provider with services as they deem appropriate. IRA owners should consult with their financial and legal advisors before choosing to work with any provider.
