Carofin. In today’s episode, we are discussing the
potential benefits and challenges of direct private investments in the
alternative investment space. Joining us is Bruce Roberts, CEO and
founder of Carofin.
What are Direct Private Investments?
Direct private investments fall under the broader category of alternative
investments, which often are presented in the form of funds that invest in
categories such as real estate, art, commodities, precious metals, and any
other private investments not registered with the Securities and Exchange
Commission. This is a massive category, with around $6 trillion invested,
larger than the public markets.
A direct private investment, in Carofin’s case, are investments in operating
companies, typically small to medium-sized businesses at various stages of
development. These can be venture-stage companies as well as well-
established companies with as much as $100 million in revenues.
Why Direct Private Investments?
Direct private investments can be attractive because they exist in an
inefficient market, meaning that investors can potentially find opportunities
to invest where there is virtually no competition, unlike the highly
competitive public markets. In these private markets, there is greater
opportunity for investors to find unique and compelling businesses to
Additionally, direct private investments allow investors to support
companies that align with their personal values or interests. Examples of
such companies include one that provides a software platform for addiction
treatment providers who, if this helps them manage their case load more
efficiently, can deliver better treatment to their patients. Another company,
for instance, enables surgical instruments to be sterilized in remote areas in
humanitarian crises or war zones without electricity or water, dramatically
expanding the footprint of where surgical procedures can be conducted.
The Challenges of Direct Private Investments
One challenge of direct private investments is the lack of transparency and
professional support in the banking community. With private companies,
there are no established guardrails such as credit ratings or market
makers that are available to public security investors. As a result, investors
must rely on their own research and due diligence. Carofin seeks to bridge
this gap by providing investors with an extensive Knowledge Base. A large
repository of information to help them enhance their understanding of
private investments, it also guides investors to approach an investment
methodically and also to learn how to analyze a proposed issuer.
When to Consider Direct Private Investments
The ideal time to consider direct private investments varies depending on
an individual’s risk tolerance, liquidity, and investment portfolio. Generally,
investors who can afford to take on higher risks for greater yields often
allocate around 10-20% of their portfolio to direct private investments.
University endowments, for example, often invest a much larger percentage
in alternative investments due to their long-term outlook.
However, investors relying on a return of capital to sustain their lifestyle
should steer clear of direct private investments, as the risk is too high.
Investment strategies will also differ depending on an individual’s stage in
life and financial goals.
Support Networks for Direct Private Investing
Going it alone in direct private investments is hard. However, a support
network like Carofin can be very helpful for investors. Carofin conducts the
due diligence on the issuer, analyzes the competitive landscape, structures
the security, and then becomes an advocate for the investors post-
investment, trying to protect their interests and ensuring investors are well-
informed and on top of their investment going forward.
Advice for First-Time Investors
First-time investors exploring direct private investments should start by
educating themselves on the sector. Carofin’s Knowledge Base is an
excellent starting point, offering white papers, videos, articles, and a glossary
to help investors understand the jargon and intricacies of the investment
world. Additionally, while many more opportunities exist thanks to
crowdfunding sites. Roberts recommends that investors be cautions of these
platforms. Don’t be that fish rising to the “shiny” opportunities. Instead,
Bruce argues that he likes to focus on businesses with sound business
models. They may be more obscure, but many of them have solid margins
and the potential for growth.
Working with Carofin
Carofin offers a comprehensive approach to direct private investments,
guiding investors from origination to post-investment support. They
perform thorough due diligence, including personal background checks
and lien and judgment searches and ensure that investors are well-
informed about the companies they invest in. Carofin also provides
ongoing support to help companies succeed, increasing the chances of a
Direct private investments offer unique opportunities for investors to
support growing businesses that align with their values and interests.
Although challenges exist in terms of professional support, organizations like
Carofin are working to make the process more efficient and accessible. By
taking advantage of the inefficiencies in the private market, investors can
potentially achieve greater returns and make a positive impact on the
companies they support.
Watch the full episode above and if you’re ready to consider investing directly in private companies, here are Carofin suggestions.