Private Investment Bubble Spells Huge Opportunity

The “larger” part of private equity is starting to look a little bubbly…

upcoming IPOs

Source: Shutterstock

And it spells huge opportunity for us.

I’m going to explain exactly what I mean, but first it’s important to understand how private equity works.

The Stages of Private Investing

Private equity (PE) investing is exactly what it sounds like… investing in the equity (ownership) of private companies (companies that do not trade on a public exchange).

Private investors can make enormous returns when their investment has a liquidity event…

These liquidity events are when a company’s privately held shares are bought by another company (acquisition), or transition to become publicly traded shares (through an initial public offering, or IPO).

Either of these two events can create enormous gains for investors.

However, it’s very important to understand the different stages — or funding rounds — of private equity. There are different risks and potential rewards at each stage.

Private companies raise capital through a series of funding rounds. These capital raises usually start with a “seed” stage round, followed by a “series A,” then “series B,” and so on…

Early funding rounds for private companies are typically filled by smaller investors. We’re talking about seed investors, angel investors, and those like us, who invest through equity crowdfunding platforms.  A startup company only needs a relatively small amount of money to get operations up and running.

Larger capital raises often begin during series B or later rounds. That’s when tier 1 venture capital and private equity firms come in to write checks for tens of millions of dollars (and sometimes much more!).

These later-stage funding rounds usually have less risk for investors, as the private company is showing traction. The thought is the more money a private company raises, the safer the investment becomes.

Plus, if there is an expectation of a liquidity event, investors feel much more comfortable shelling out large sums of money.

This is especially apparent today…

Coming Bubble? Series B and Beyond

As of early December, there have been $300 billion worth of IPOs on both the NYSE and the Nasdaq — the two largest public stock exchanges in the United States.

That almost doubles 2020’s record year on both exchanges of $168 billion!

A chart showing the total amount raised on IPOs each year from 2010 to the present.

Private companies are running for the exits to cash in via an IPO.

So, what’s really going on here?

Major private equity firms are plowing billions of dollars into trendy companies right before they hit the public markets.

Companies like Sweetgreen (NYSE:SG), NerdWallet (NASDAQ:NRDS), and Rivian (NASDAQ:RIVN).

But…

Early-stage (seed round) funding sits at a seven-year low!

A chart showing the share of early-, mid- and late-stage and other deals between 2015 and the present.

Meanwhile, later-stage funding is exploding. Total series B investment amounts for 2021 have just hit $47 billion. That’s up from 2020’s $25 billion.

Crunchbase reports:

“As more private equity firms and other institutional players enter the late-stage markets, it’s gotten more competitive and more expensive to get a big stake in a hot company at Series C and beyond.”

Late-stage funding is getting overcrowded, which spells big opportunities for early-stage private investors like us.

Calling All Early-Stage Investors (That’s You!)

Startup companies that are raising series seed and A rounds are struggling to find investors. The companies are starting to offer very attractive valuations for these early stages just to bring people in.

The better the valuation, the more explosive your gain chances are. We’re talking about 10x, 20x and 50x your money.

As private investors, that’s exactly what we are after. That’s the kind of money that can change your life.

Here at Venture Capital Digest, I’ll keep you updated about where these private investing opportunities are popping up.

In fact, if you haven’t already, be sure to check out your exclusive free report — Top 3 Private Company Investments for 2022.

I’m putting the finishing touches on a deal to share to my Venture Capital Investor subscribers. It’s in a sector of the market that has blockbuster potential…

We plan to launch Venture Capital Investor to the public early next year. I’ll be sure to send you the details once we are live.

On the date of publication, Cody Shirk did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

By focusing on megatrends that will shape the future, Cody Shirk uncovers generational wealth in the private investing space. To make sure you never miss Venture Capital Digest, click here to subscribe.


Article printed from InvestorPlace Media, https://investorplace.com/venturecapitaldigest/2021/12/private-investment-bubble-spells-huge-opportunity/.

©2022 InvestorPlace Media, LLC