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Key Takeaways
- Entrepreneurs can apply their operational mindset to long-term private investments outside of public markets.
- With private capital, founders can invest patiently, align values, and build wealth outside the public markets.
If you’re an entrepreneur, chances are you’ve raised “private capital” in some form to grow your business. But have you ever thought about becoming an investor?
Private capital – investments made outside the public markets – was once seen as the exclusive territory of institutional investors or multi-millionaires. But today it’s almost mainstream, and increasingly it’s a space where successful founders and entrepreneurs can participate, not just to potential grow wealth, but align investments with values, passions and long-term vision.
And for a business owner or family looking to outperform, keep track of inflation and try to ‘beat inflation’ [public] market,” private capital can allow you to take the playbook you built your business with and apply it to your own family’s portfolio.
And while you don’t have to be part of the financial elite to get involved, you do need to think about it carefully, get the right advice and stick to a plan. What counts as private capital?
Private capital refers to investments in private property – things that are not traded on the public stock market. Broadly speaking, these include:
- Private assetswhere you invest in private companies, often through funds or direct deals. This can span the life cycle of a company (from startups and venture capital to growth equity and ultimately to leveraged buyouts or LBOs).
- Private creditincluding loans to companies and assets outside traditional banking channels.
- Private real estatesuch as real estate, infrastructure, agricultural land or energy projects.
- Opportunistic investments or investments without collateralwhich may include emerging segments such as sports teams, collectibles, or ownership interests in niche assets.
These opportunities generally offer the potential for higher returns than their public market equivalents, but they come with drawbacks: less liquidity, a longer time horizon, and the need for more due diligence. For business owners used to making strategic decisions under uncertainty, that may feel less like a disadvantage – and more like familiar territory.
Related: I interviewed more than 100 entrepreneurs who started companies valued at $1 million to $1 billion or more. Here is some of their best advice.
From operator to investor
Most entrepreneurs are private capitalists by nature; they just don’t always realize it.
You built something from nothing. You’ve taken risks, raised money, optimized for growth, and learned how to read a balance sheet from front to back. These instincts translate well into the world of private capital.
Furthermore, private capital offers a way to stay close to the entrepreneurial ecosystem. Whether you’re backing the next wave of founders, helping to scale solutions in industries you care about, or investing in the built environment of the communities you live in, these investments aren’t always just passive ownership. In some cases they can be participatory.
And they can be personal too.
How to Get Started: A Practical Introduction for Entrepreneurs
You don’t have to reinvent your investment strategy overnight. If you’re curious about adding private capital to your portfolio, you should always talk to an advisor, but here are four ways to get started:
- Start small and think long term. Private capital is not about quick wins. It often takes years before returns are realized. Start with a modest allocation – something you can afford to keep illiquid – and give it time to work. A typical minimum might be an investment of $250,000.
- Diversify your bets. As with public markets, diversification is important. You may consider spreading your capital across asset types (equities, loans, real assets) and across themes or sectors that interest you. For example, you can support a clean energy fund, participate in a real estate project and still make room for that promising young company in your industry.
- Know your liquidity needs. Private capital requires patience – and access. We always advise clients to ensure they have met their short and medium term cash needs before committing. Private investments are typically locked up for years, and early exits can be expensive or unavailable.
- Prioritize alignment and access. Large private investments are usually relationship-based. That could mean investing through trusted managers or pooling resources with like-minded colleagues. Pay close attention to the incentives: are the managers investing their own capital? Are the benefits structured in your favor? Transparency and coordination are more important here than anywhere else.
Related: Why Founders Outside Silicon Valley Have an Advantage
Private capital as a long-term strategy
You may have heard the proverb, “The best time to plant a tree was twenty years ago. The next best time to plant a tree is today.”
Often attributed to Chinese wisdom, the exact source is unknown, but the intent is incredibly relevant to the idea that an investment strategy, including one focused on private capital, is one that takes advantage of a long-term investment horizon.