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how to invest in private companies

How to Invest in Private Companies in 2024

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Looking back at the data from the year 2000 to 2020 demonstrates a simple fact – private equity consistently outperforms the S&P 500:

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But I’m guessing you don’t need a McKinsey report to know that.

Unless you run a private equity firm or are very wealthy, there’s no way to invest in private companies, right?

Not exactly.

Retail access to private companies is limited but it does exist. In 2024, you can invest in private companies before they go public, even if you don’t want to invest through a private equity firm or know a cofounder.

Several limitations are still in place, but this segment of the market has become much more accessible to the everyday investor.

Here are the 5 best ways to invest in private companies.

How to Invest in Private Companies Before They Go Public (5 Ways)

Before I jump into the methods, keep in mind that not all of the forms listed below involve investing in the company directly – some are ways to invest indirectly.

Additionally, some of the methods require you to be an accredited investor. If you don’t know whether you qualify as an accredited investor, skip down to the section titled ‘How to Invest in Private Companies as an Accredited Investor’.

Here’s how to invest in pre IPO companies as a retail investor.

1. Pre-IPO Investing Platforms

  • Direct investment: Yes
  • Accreditation required: Yes

The best way to start investing in private companies is via pre-IPO investing platforms. My favorite of these platforms is Equitybee.

By funding employee stock options, Equitybee gives investors like you the opportunity to own stakes in private, VC-backed companies like Stripe, SpaceX, Discord, Instacart, and more.

Stripe equitybee

In exchange for funding the options (in essence, purchasing an employee’s stock options), you will receive a percentage of furniture proceeds from successful liquidity events.

A liquidity event can be:

  • A merger
  • An acquisition
  • A company going public

This is the purest form of investing in private companies for retail investors like you and I.

The platforms are easy to use and provide investors with a wealth of information on the companies they can invest in. You can also curate wishlists and receive notifications when interesting opportunities arise.

2. Investing via Alternative Asset Funds

  • Direct investment: No
  • Accreditation required: It depends

Investing in alternative asset funds, such as Titan, Yieldstreet, and Fundrise, gives investors access to a diverse portfolio of private companies.

Titan’s ARK Venture Fund, for example, is open to non-accredited investors. It holds equity in more than 25 private companies, at a total expense ratio of 4.22%.

Similarly, the Yieldstreet Prism Fund has a $10,000 minimum investment and invests in a variety of alternate assets, such as art, marine real estate, and legal finances.

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While Fundrise primarily focuses on private real-estate investments, they also offer pre-IPO tech stocks. These offerings are only available to accredited investors.

Note: We earn a commission for this endorsement of Fundrise.

3. Use a Specialized Broker

  • Direct investment: Yes
  • Accreditation required: Yes

Most stock brokerages do not provide access to private companies, but some do.

These brokers have formed arrangements with IPO underwriters to provide shares to their clients before the company becomes publicly traded.

Here comes the bad news: most of this is still only available to those that qualify as accredited investors, and even specialized brokers only provide access to IPOs every now and then.

Some of the brokers that offer access to IPO stocks and IPO preorders are:

Buying an IPO stock straddles the line between investing in a company before and after it becomes public. Technically you’re still buying a private company, but only a few days or weeks before it goes public.

Investing at this stage is essentially just a bet on a hot IPO.

4. Buy Shares Directly

  • Direct investment: Yes
  • Accreditation required: It depends

If you know a founder, have industry connections, or can trade your knowledge and work for equity, you can leverage that into ownership.

This method is only available to the lucky few, but it’s worth mentioning. If there’s a private company you want to invest in and a friend of a friend knows a cofounder, ask for a connection.

5. Invest Indirectly

  • Direct investment: No
  • Accreditation required: No

Any retail investor can invest in a number of private companies indirectly.

The easiest way to accomplish this is to invest in public companies that own stock in private companies that interest you.

For example:

  • A large portion of OpenAI is owned by Microsoft
  • Ownership of Hulu is split between Disney and Comcast
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By investing in Microsoft, you can gain exposure to OpenAI’s upside. Microsoft has made a $10 billion investment in Open AI, the lab behind the AI tool ChatGPT. Since Microsoft is publicly traded, anyone can buy it and own a piece of Open AI.

Remember, if you’re going to invest in Open AI via Microsoft, you’re investing in Microsoft’s entire $2 trillion business, of which its investment in Open AI is just a small part.

You can also invest in private companies via private-equity ETFs, although they typically charge high fees.

The Best Way to Invest in Private Companies

As mentioned above, the best way to invest in private companies is on pre-IPO investing platforms, of which Equitybee is our favorite.

You can become an investor in private companies like Stripe, Reddit, and Instacart.

Equitybee gives accredited investors access to hundreds of VC-backed startups. Investors like you can own stakes in private companies at past valuations. In exchange for investing, you will receive a percentage of future proceeds from successful liquidity events.

See the full list of private companies you can invest in on Equitybee.

Subject to availability.

Pros and Cons of Investing in Private Companies

Pros
Cons
Higher return potential
Higher risk
Diversification outside of public markets
High capital requirements for most methods
Investments can be illiquid

How to Invest in Private Companies as an Accredited Investor

If you qualify as an accredited investor, you get your pick of the litter – all of these methods are available to you.

Purchasing shares directly, using a specialized broker to preorder IPO stocks, and using dedicated pre-IPO investing platforms like Equitybee are only available to accredited investors.

How to Qualify as an Accredited Investor

To qualify as an accredited investor, you must:

  • Have a net worth of at least $1 million, excluding your primary residence,
  • Have an income of at least $200,000 per year (or $300,000 for married couples), OR
  • Be a qualifying industry professional. 

How to Invest in Private Companies Without Being an Accredited Investor

Investing in private companies without being an  accredited investor is slightly trickier – but it is possible.

The easiest way to do this is via qualifying alternate asset funds such as Titan or Fundrise.

The second option is to invest indirectly by purchasing equity in publicly-traded companies that hold ownership in private companies, such as Microsoft’s ownership of Open AI stock.

Should I Invest in Private Companies?

Investing in a private company is a great opportunity for those who are looking for high returns and are willing to take on a higher level of risk and illiquidity.

Publicly-listed companies are obligated to report their financials. Getting access to pertinent information for private companies to use in fundamental analysis isn’t as straightforward.

Private equity is harder to sell and it may take a long time to see profits.

Final Word: How To Invest in Private Companies

Investing in a private company can be a great way to achieve bolster your portfolio returns and diversify your investments outside of public markets, but it comes with higher volatility and illiquidity.

Without being an accredited investor, it can be difficult to get your foot in the door, but it is doable. With a bit of knowledge and the right approach, you can invest in private companies and reap the rewards.

For accredited investors, I can’t recommend Equitybee enough.


FAQs:

Can you invest in a privately held company?

Yes, you can invest in a privately held company in a variety of ways. However, most of those will require qualifying for accredited investor status.

How can I invest in private markets?

You can invest in the private market by using pre-IPO investing platforms, alternative asset funds, specialized brokers, direct shares, and indirect investments.

What is investing in private companies called?

Investing in private companies is often referred to as private equity investing.

How much money do you need to invest in private equity?

The minimum investment required varies depending on the provider, but at least $5,000.

Equitybee has a $10,000 minimum investment requirement to invest in private companies on its platform, while some private equity funds require $100,000 or more.

Where to Invest $1,000 Right Now?

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Our March report reveals the 3 "Strong Buy" stocks that market-beating analysts predict will outperform over the next year.

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About the author

Mijusko Sibalic

Contributor

Mijusko Sibalic is a content writer and copywriter that wandered into the financial space from a background in political science. Ever since then, his professional sights have been set on the same goal - communicating important topics regarding investing and the journey to financial independence to the wider public.