Private Investments

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    Posted: 25 September 2010 12:51 AM

    First, congrats to all AAPL longs on the ATH (I’m about 80% in so quite happy).

    Now, in the middle of all of our Apple conversations, I’d like to diversify a little bit (the subject matter at AFB, if not my actual investments) and talk about alternative venues, specifically private investments.

    I came across this site that allows for trading of private, venture-backed companies. A cursory attempt at search (which populates instantly, much like the new Google interface) reveals that the selection is quite limited, but in principle one could find an attractive speculative play riding on some of the new technologies. Questions to AFB:

    1) Does this look legit?
    2) Would you consider investing in anything? Short term / medium term?
    3) Any alternative sites? What about microlending / macrofinance? (Kiva, Virgin Money)
    4*) Share a story of your favorite private investment and how you were able to do that. I’m young investor and haven’t had the opportunity to participate in family business investing, angel investing, microlending, or anything of the sort.

    (*) These would be extremely valuable and highly appreciated smile

         
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    Posted: 26 September 2010 01:18 PM #1

    Hmm… Anyone?

    Either I should blame the timing (posting late Fri night), or the million things happening with Apple at the moment, hardly a bad thing smile

         
  • Posted: 26 September 2010 01:44 PM #2

    Roman, I saw your post and wanted to peddle back to it.

    I don’t have any information or insights, but it does raise some questions. Who are the Specialists? It’s one thing to get money in, it’s another to get money out. Who manages your account? What are the fee structures? What are the disclosure requirements?

    Considering the opportunities already available in publicly traded firms, why venture into this arena?

         
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    Posted: 26 September 2010 03:01 PM #3

    DawnTreader - 26 September 2010 04:44 PM

    Roman, I saw your post and wanted to peddle back to it.

    I don’t have any information or insights, but it does raise some questions. Who are the Specialists? It’s one thing to get money in, it’s another to get money out. Who manages your account? What are the fee structures? What are the disclosure requirements?

    Considering the opportunities already available in publicly traded firms, why venture into this arena?

    Robert, these are all valid questions which might prevent me from taking any action. The Specialists on SharePost (after a cursory review of several) seem to be a VC/PE mix with experience in secondary markets. There’s not a lot of them, it seems; the top companies I looked through all have the same 3-4 names associated with them. The site’s biggest detriment for me is actually the rather limited choice of companies. Sure, Zynga is hot now if you wanted to jump on that bandwagon, but I wouldn’t be comfortable since it could still be a fad.

    As to why venture into private investments, the usual answers are
    1) Diversification
    2) Information asymmetry

    Example of my thinking for the latter: Let’s say you get a chance to invest in a game maker focused on the iPhone and the iPad, you see their games as being successful and you also (being an AFB member of course) realize that the iPhone/iPad revolution is bigger than what the market thinks. Then you might be better off placing your bet here than with Electronic Arts (ERTS) for example since (1) that company’s product portfolio is more diluted and (2) it’s public, it’s covered by analysts, and it’s got an information flow attached to it. Of course, I don’t think these companies are listed on SharePost which makes it a moot point.

    My final objective was to just see if anyone on AFB had any investment experience outside the primary markets.

         
  • Posted: 26 September 2010 03:51 PM #4

    Roman - 26 September 2010 06:01 PM

    My final objective was to just see if anyone on AFB had any investment experience outside the primary markets.

    Check back after AAPL reaches $500 per share.  :wink:

         
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    Posted: 26 September 2010 04:01 PM #5

    DawnTreader - 26 September 2010 06:51 PM

    Check back after AAPL reaches $500 per share.  :wink:

    Will do. That should only take a couple of years anyway! LOL

         
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    Posted: 26 September 2010 09:04 PM #6

    DawnTreader - 26 September 2010 06:51 PM
    Roman - 26 September 2010 06:01 PM

    My final objective was to just see if anyone on AFB had any investment experience outside the primary markets.

    Check back after AAPL reaches $500 per share.  :wink:

    So, don’t bother to look for alternative investments till AAPL is approaching $500.  Thank you for the cue.


    Roman,

    I’d posted the same question when AAPL was above $80 tongue laugh.  Decided to just stay with AAPL.  The average return of AAPL over the past five years is over 40%, so what kind of return do you expect from these alternative investments?  My diversification is to buy residential RE.

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  • Posted: 26 September 2010 09:15 PM #7

    I have an account that is managed by the Oregon Investment Council - my employer, a community college, puts an amount equal to 6% of my salary into this account.

    They have a pretty large allocation in private equity funds - about 20% the last time I checked.  That is plenty for me - about a 25% of our retirement investments are in that account.  It was only down 1.25% for the month of August, much better than the standard indices, so I think that is okay.  I feel no need to try to do anything with other funds.

         
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    Posted: 27 September 2010 12:16 AM #8

    I know nothing of private investment vehicles.  I do know plenty about Apple, relatively speaking, and many people still don’t.

    That kind of information asymmetry has historically been very kind to me, as long I don’t go in over my head with short-term time horizon investments that coincide with AAPL falling off a cliff for a while.

    Just one person’s opinion, of course.

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  • Posted: 27 September 2010 08:59 AM #9

    Roman - I can’t give you too much insight into actually investing my own hard cash in private businesses, however, I work in private equity and therefore have spent the past three years investing other people’s money into private businesses.

    In terms of the link to SharesPost, I was under the impression that the SEC was clamping down on these sorts of sites?  Operating secondary markets in private businesses is borderline illegal, or flying pretty close to the wall and will no doubt receive a lot of regulatory attention pretty shortly.  I am not an expert on this, however, I don’t think the SEC will stand by and let these pretty new secondary markets for private businesses go under the radar for long.  Therefore, in terms of putting your own money into any of these ventures through these markets like SharesPost is probably pretty risky. However, please don’t take my word for it, I am just giving my two cents worth, and could easily be wrong.

    If you are looking to gain access to private equity or VC investing, your best bet is to look for publicly listed PE funds - I can direct you towards a few in the UK, but don’t know of any in the US (I am sure there are plenty though if you look hard enough).

    In terms of actually directly investing into a private business, you are going to need a pretty decent chunk of cash to start doing this.  Primarily because the private business is likely interested in raising a couple hundred K (or more) and will want to find one or two people that can finance this, rather than having lots of investors all chipping in 50k etc. (the reasons are pretty obvious, having a large investor base is an admin nightmare, especially the sort of thing that small fast growing businesses definitely do not want!)  Therefore if you are making relatively large punts like this, you need a decent amount of cash (think a couple of million at least) just in case it blows up, given it is inherently risky.

         
  • Posted: 27 September 2010 09:31 AM #10

    Roman - 25 September 2010 03:51 AM


    Questions to AFB:

    1) Does this look legit?
    2) Would you consider investing in anything? Short term / medium term?
    3) Any alternative sites? What about microlending / macrofinance? (Kiva, Virgin Money)
    4*) Share a story of your favorite private investment and how you were able to do that. I’m young investor and haven’t had the opportunity to participate in family business investing, angel investing, microlending, or anything of the sort.

    (*) These would be extremely valuable and highly appreciated smile

    Hi Roman, I too have looked into this site and receive daily emails from them listing new offers to buy and sell. I have not opened or funded an account with them. My feeling is they are, in fact, legit but it’s a purely crap shooting site allowing inside employees to sell and “cash out” part or all of their holdings. I know of no way to effectively evaluate whether the asking or selling price of companies like linkedin, facebook Zynga, et al are reasonable since all are private and generally not profitable (yet) with no accounting transparency. My interest is in companies that are on the verge of an IPO but again how do you know before the prospectus what the IPO will be priced at or how diluted your shares may become.

    Maybe someone here can shed some light on how to perform the due diligence on these companies necessary for us to reach a comfort level and pull the trigger so to speak.

    http://www.secondmarket.com is another site that may interest you and claims to be larger than SharePost for these type investments. They also offer other high risk/reward vehicles like CDO’s.

         
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    Posted: 27 September 2010 10:14 AM #11

    Jonathan and chiefthinker -

    Thanks for the thoughtful and informative replies. There’s a wealth of information in those two posts that I’ll need to digest, but I think the collectively sum up why no one is investing privately, after all.

    At this point, the correct strategy seems to indeed focus back on AAPL reaching $500 - but I was only half-joking when I said it’ll come very soon, bringing the next question (and then what?) No matter what Apple’s price I expect to be investing in it heavily for another 5 years heavily based on fundamentals, an likely to have stake 15 years [depends on so many factors of course, such as Steve’s health, or the way the mobile market is shaped in the next 5 years].

    The main alternative, of course, is to bet on other public companies - from time to time there’s chatter here on AFB about what works best, but I doubt it’ll pick up significantly while there’s still money to be made in AAPL. I don’t know what we’ll call our community when that day comes… PAFB? (Post-Apple Finance Board)

    In the meantime, thanks again - and back to watching AAPL fight towards $300.