Investing in Businesses with Joseph BarisonziMarch 6, 2021
What is the definition of business investment?
“A business investment is where you are making your money available to another company to grow their business, and you are expecting that money back, and you are expecting to be paid for the use of your money.”
– Joseph Barisonzi
What is the difference between a
Public Security and a Private Security?
Security is when you put money into a business and you are expecting a return of that money that you gave them, plus more. You are not expecting to do any work for that money back plus interest. You are expecting the company to use your money to grow their business value and to pay you back for using that money.
Understanding Private versus Public Securities
All securities are regulated in the United States. First, there is an assumption that the security is public and that it is traded on a public market such as the NASDAQ and the NYSE. These securities are subject to disclosure and transparency that is monitored and advised by brokers and other wealth management advisors. People like us are able to get all of the information before we buy shares.
Private securities are very different from public securities. Before these securities become public, they apply for an exemption from public registration in order to stay private. These private businesses that sell securities are solicited in getting investors to pool their money and use it to grow their value. They are selling a security to grow their value, but have chosen to stay private and are still subject to certain rules and requirements.
You, as an investor in these private securities, need to know what these rules and requirements are.
An important aspect of public shares is that you have liquidity. This liquidity gives you the ability to tell your broker to buy or sell a share if you feel that it is overvalued and do not want it on your portfolio, or you may want to buy more shares of a particular stock.
In contrast, with private securities, as detailed in your shareholder agreement, you may not be able to sell it at all, or only back to the company when they want it. You have to be reliant on the business owner to give you all of the information you need about certain securities.
One major point of difference is that private investments can fail. Although public investments do fluctuate, the likelihood of it going to 0 is lower and you should know when to get out of that investment when you see it dropping. Public and private shares have the same protections around fraud, but these protections might be harder to uncover because of a security’s complicated disclosures.
Who can invest in public and private securities?
Anyone can invest in public securities. Private investments also restrict who can invest. The vast majority of private securities can only be invested in by an “accredited investor.” An accredited investor is someone who has a net worth of over $2 million, not including the value of their home. Although not everyone can be an accredited investor, there are some exceptions that can be made for people such as professionals in the field like brokers and lawyers. On an international level, an accredited investor is known as a “sophisticated investor.”
The Benefits of Private Investments
Although investing in private businesses may seem more complex, it does provide additional benefits for you. One advantage is that investors can choose to make a difference in our community by supporting businesses that value public policy, environmental issues, and social justice. Investing in these businesses is a wealth generation and impact strategy that will have a positive impact on you and your community at large.
“Private companies are the backbone of innovation, growth, and wealth creation.”
– Joseph Barisonzi
When choosing to make an investment, it is important to remember; people who make a lot of money make it in the private markets. The majority of the wealth is generated when the company goes public and you will benefit from the growth. Although you can make money in the public markets, you will build more wealth in the private markets.
How much do you spend on your investments?
Investing is a different process for every person. Therefore, the amount you should spend on investments is different than others. In terms of creating your complete portfolio, you should be diverse in your investments in both markets.
Private investments fall into a category called “alternative investments.” It is recommended that between 10-20% of your portfolio should be in those private investments. Joseph also mentioned that if you are just starting to build your investment portfolio, real estate and cryptocurrencies are a great place to start. These investments have the greatest likelihood of adding real wealth to your retirement portfolio from the start.
How do you do your own due diligence?
How do you get started? You will have to do some research to find private deals. In reality, you are probably being offered them all of the time by friends and family. As Joseph says, “There’s always an in-law.”
Private investments rely heavily on the companies themselves for information and for you to do your own due diligence. Websites such as Motley Fool are a great place to start, but should not be your only method. You may also want to share your information with a trusted expert or mentor for advice.
When doing your own due diligence, you want to know about the people you are investing in and their business model. Joseph says that, “the best plans are with nothing if they are not being run by someone who can implement them.”
Investing with GLO!
Investment portfolios like invest with GLO.com have curated portfolios of private investments around different purposes and intentions. GLO offers a variety of different platforms to grow your portfolio and to connect with other investors. GLO’s private portfolio is all established businesses with proven revenue and leadership who are looking for revenue to grow their businesses. Currently, GLO is only doing investing for accredited investors.
GLO also has a document center where companies share a variety of information about their securities. It also includes a list of what information you should be looking at as an investor. The documents that you need to be “Project Ready, Fund Ready, Raise Ready” are also the documents you should be looking for as an investor. You can also join GLO discussion boards and membership groups to get to know leaders and experts in a specific industry.
Understanding the Investment
When you are choosing to invest in a business, you are not just buying shares! There are many different types of investments like preferred stock positions, safe agreements, preferred debt positions, and convertible debt that have differing terms and conditions. You need to understand the investment itself. To help you understand each investment, follow the rule of:
Source -> Look -> Target
Supporting the company as a whole and its mission is vital when choosing where you invest your money. Many different people invest in certain companies for different reasons. You can join a niche impact group, like groups that invest in women-owned businesses or black-owned businesses, who are dedicated to the social justice impact. People in these niche groups are making sure that their capital is going to help the community at large.
How do I monitor the investment?
There are many things to consider when researching information about your investments. Here are some questions to think about how you are keeping track of your investments:
- Are you going to be on the board?
- Where are they reporting?
- How quickly are they reporting?
- How often are they reporting?
- Where are you going to access the information you want?
- Is it that you just believe in it, and if they give you a return, awesome?
Joseph suggests that you look at investment platforms like GLO to use for ongoing monitoring and making that initial purchase.
Madeline Pernecky is a Dallas based writer for Global Leaders Organization. She is also an undergraduate student at Southern Methodist University, working towards a bachelor's degree in Business Marketing as well as minors in Advertising and Spanish.