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Filling In the Gaps

Pivoting from the world of trading on the public markets into investing in private companies challenges people in ways they don’t always anticipate.

I call the biggest challenge “The Void.”

Today, we receive news at the click of a button. Screens tick red and green all day long. Trading has expanded from the traditional 9:30 AM until 4:00 PM EST to now encompass pre-market trading beginning as early as 4 AM EST and ending at 8 PM EST. That barely leaves enough time to get the recommended levels of sleep every night.

Between the financial news media, Twitter, chatrooms, discords, and Reddit, among other things, there is no shortage of in the constant barrage of news, technical analysis, rumors, breaking alerts, press releases, conferences, investor presentations, and trade ideas.

In fact, if you have a portfolio of any size in terms of the number of holdings you own, it’s probably hard to escape even one day of something happening or commanding your attention. We’re conditioned for it.

If it isn’t one of your holdings then it may be an obsession with meme stocks, short squeezes, a move in the energy markets or crypto markets, a big merger, or new offering hitting the public markets for opening day. It seemingly never ends.

Even public company executives struggle. They too can become distracted with managing or watching their stock price, even to the point of obsession. I’ve seen it happen firsthand in my private consulting with different companies.

Private companies have the luxury of not needing to appease the never-ending appetite of public shareholders. There’s no weekly, daily, or hourly measuring stick of price action. That doesn’t mean they should ignore their investors, but their job is growing the company, increasing its value, and moving early investors towards growth and a possible exit.

And that’s why I needed to recondition myself if I wanted to invest in private companies like Crowdfunding and Regulation A+ offerings.

Private company opportunities mean news voids.

No quarterly earnings reports unless they are listed on a public exchange. No analyst or investment bank coverage or upgrades. Conferences are a possibility, but not too common. You can forget about chatter on your favorite social media site or financial news channel.

And this is the biggest challenge for many. The need for continued reinforcement must be replaced by patience. It’s easy to say but there’s a reason the phrase “the waiting is the hardest part” exists. It’s true.

None of the above, or even all of the above, replace the risk associated with private company deals or public company Regulation A+ offerings. Even if a company checks all of the seven boxes, it can still fail. Heck, it could decide to remain private, remaining illiquid and difficult to sell.There’s no magic arrow to eliminate risk in private company opportunities. I simply use this list as a way to prioritize reviews and where to continue to dig deeper on private company opportunities. This list doesn’t replace the need to diversify. It augments it.

I believe investors who can navigate the void can participate in some truly special opportunities in the private markets.