How to invest in private companies? See our 2024 guide

Investing in privately held companies It may seem challenging, but it is actually an attractive opportunity for those looking to diversify their portfolio and obtain differentiated returns.

Unlike publicly traded companies, privately held companies do not trade their shares on public exchanges.

Therefore, the investment process tends to be more exclusive and involves some particularities that we will explore throughout this guide.

In this article, I will explain how to invest in privately held companies, offering a clear and strategic vision on the subject.

With the market evolving rapidly, it is important to understand the dynamics of this type of investment and whether it makes sense for your financial profile. Let's take a look at our updated guide for 2024.

What are privately held companies?

Before talking about how to invest, it is essential to understand what these companies are. Privately held companies are those whose shares are not traded on stock exchanges.

They may be controlled by a small group of shareholders or by a single entity, such as a family or a group of investors.

The main difference in relation to publicly traded companies is the lack of intense regulation by the Securities and Exchange Commission (CVM) and less transparency regarding their operations.

Does this make the investment riskier? Not necessarily. Privately held companies are often established businesses with stable revenue models, but they can also be innovative startups.

The key is knowing how to choose the right company to invest in.

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How to invest in privately held companies

O direct investment It is a classic way to become a partner in a privately held company.

It usually occurs when a private company is raising capital and invites strategic investors to participate.

To participate, it is usually necessary to have a high level of equity, as this type of operation involves a higher risk.

Another common way to invest in privately held companies is through funds of private equity.

These funds raise capital from investors to purchase significant stakes in private companies.

The goal is to increase the value of the company and then sell it at a profit, either to another company, to a larger fund or even by carrying out an initial public offering (IPO).

Investment crowdfunding is a more accessible way for small investors to participate in this type of company.

Online platforms like StartMeUp and EqSeed allow you to invest smaller amounts in early-stage private companies.

This modality has been growing in popularity, especially for startups.

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Investment Method	Access Level	Risk	Average Investment Ticket
Direct Investment	High	Medium-High	From R$ 100,000
Private Equity Funds	Medium-High	Average	From R$ 500,000
Investment Crowdfunding	Low	High	From R$ 1,000

Main advantages of investing in privately held companies

One of the biggest attractions of investing in privately held companies is the potential for higher returns.

These companies, because they are outside the stock exchange, are not subject to the volatility of the public market.

They follow their own growth schedules and targets, often achieving impressive results when they are acquired or opt for an IPO.

Another benefit is exclusivity. Investing in a privately held company can provide an opportunity to be in on a unique and often innovative business before it gains public attention.

For qualified investors, these businesses can offer quite significant returns.

Challenges and risks of investing in privately held companies

Despite the potential gains, it is essential to remember that investing in privately held companies also presents challenges.

The first is liquidity. Since these companies are not listed on the stock exchange, it can be difficult to sell your stake if you need cash quickly.

You may be "locked in" to the investment for several years, until the company is acquired or goes public.

Another risk is the lack of transparency. Unlike publicly traded companies, private companies are not required to disclose their financial information frequently.

In other words, this means you will need to rely on internal reports and your own analysis to make decisions.

How to choose the right company to invest in

Now that we’ve discussed the different ways to invest, the question remains: how do you choose the right company to invest in? Here are some essential factors to consider:

#Business Model and Market

The first analysis should be about the market in which the company operates. Privately held companies that operate in niche markets, but with high demand, may have interesting growth potential.

You need to understand the business model and how it differentiates itself from competitors.

#Management Team

Evaluating the team in charge is crucial. Private companies often rely heavily on their founders and managers.

Therefore, it is essential to ensure that they have experience and a long-term vision.

#Financial History and Projections

While many privately held companies do not disclose their figures openly, you can request financial reports before investing.

Check the profit history and projections for the coming years.

#Exit Plan

Make sure there is a clear exit strategy in place. This could be through a sale of the company, a merger, or an IPO.

Knowing how you can redeem your winnings is vital.

Private equity market growth in 2024

The private equity market is expanding. In 2024, private equity and venture capital funds in Brazil are expected to continue to grow.

A report from the ABVCAP (Brazilian Association of Private Equity and Venture Capital) showed that the volume of investments in privately held companies grew by around 20% in 2023, and the trend is for this number to remain the same or even increase.

The rise of investment crowdfunding platforms has also democratized access to these types of assets, allowing small investors to take a stake in promising private companies.

Therefore, it is possible to expect an increase in opportunities for those seeking to invest in privately held companies in the coming years.

Relevant Quote

As Warren Buffett, one of the greatest investors in the world, rightly said: “Price is what you pay, value is what you get.”

This is especially true for privately held companies, where the value of your investment may not be immediately apparent but can generate substantial returns in the long term.

Final Considerations

Investing in privately held companies is a way to diversify your portfolio and access unique growth opportunities.

However, it requires care, patience and good market analysis. The key to success is choosing the right companies, having a clear strategy and being prepared for risks.

In 2024, this market looks promising, especially with the growth of platforms that facilitate access to this type of investment. Therefore, if you want to expand your financial horizons, investing in privately held companies may be the next step.