Looking Ahead at the Growth of Private Equity

As a market now worth millions of dollars on a global scale, the history of private equity dates back to the early 1900s when J.P. Morgan purchased the Carnegie Steel Corporation. Since then, the industry has seen tremendous growth, especially as the global economic climate continues to develop. Over the next four years, analysts predict that the global private equity market will grow by $734.93 billion between 2022 to 2027, a CAGR of 9.32%. 


Much of this growth is being driven by many factors. One of the most important factors is the increasing number of high-net-worth individuals on a global scale. High-net-worth individuals are defined as people with net investable assets amounting to more than $1 million. Because of this wealth, they are key players in private equity investments. Based on a report published by Boston Consulting Group, its projections show that capital commitments to private equity funds from these wealthy individuals will grow at a CAGR of 19% to reach $1.2 trillion by 2025 and account for over 10% of all capital raised by private equity funds.


The rise in private equity deals is another major driver of the market. Strategic alliances between companies are becoming more common, allowing them to access resources they otherwise would not be able to gain access to on their own. For example, Blackstone recently partnered with Thomson Reuters to carve out its financial and risk business into a USD 20 billion strategic venture. 


Despite the various drivers of market growth, there are a few challenges that could impact the future development of the private equity market, such as transaction risks and liquidity. This concern primarily arises in transactions between companies from two different countries. Transaction risk can lead to losses when the currency rate changes before transactions are completed, as well as through delays or defaults in payments due to foreign exchange controls or political instability in certain countries. Additionally, low liquidity levels of private equity assets could hinder investments in private equity, as investors require more liquidity to invest in other assets.


Overall, the private equity market is expected to experience moderate growth over the next five years. This growth will be driven by factors such as an increasing number of HNWIs investing in private equity and a rise in strategic alliances between companies. However, some challenges could impede this future development including transaction risks associated with international transactions and low liquidity levels of assets. Despite these potential issues, global private equity investments will likely increase between 2023 and 2027 due to economic recovery and businesses seeking new investments. 

Best Practices for Shareholder Management

Shareholder management is a critical part of any company, but it can be especially daunting for those who have recently completed a RegA+ or RegCF offering. When you welcome so many new shareholders on board, it’s important to have a plan in place for how you will manage them to ensure a positive relationship. Thankfully, shareholder management can be streamlined with the right tools and communication strategy.


Shareholders have a vested interest in how your company performs. They will want to know about the company’s progress, financial information, or future plans, and they have a right to be kept in the loop. Unhappy shareholders may spread negative word-of-mouth about your company, which could hamper your ability to raise additional funds in the future. Additionally, if shareholders feel like they are in the dark about what’s going on with your company, they may choose to sell their shares, which could hurt your stock price. Thus, it is important to have a shareholder management plan in place to ensure that you are maintaining strong relationships with your shareholders. So, what does this look like in practice?


Continuous Improvement


A company’s first step should be to accurately evaluate its investor relations performance, with the analysis serving as a benchmark. While share price, analyst ratings, and price-to-earnings ratios provide some measure of a company’s ability to meet shareholder needs, they don’t provide much information about other dimensions of the investor relations function, such as the cost of operating the investor relations department or the quality of investor relations communication channels. It is important to establish an objective assessment of such things because ongoing monitoring of these metrics and the overall investor relations strategy can help to identify areas for improvement


Regular Communication


One of the most important things you can do to manage shareholders is to maintain regular communication with them. This can be done in many ways, such as through email, webinars, podcasts, or blogs. No matter what method you choose, it’s important to keep shareholders updated on your progress and answer any questions they might have. This will show them that you value their investment and are committed to keeping them informed.


Use Shareholder Management Tools


Another important tip for shareholder management is to use shareholder management tools, such as the shareholder management solution from KoreConX. This platform provides many features and benefits, such as the ability to keep shareholder documents like earnings reports secure and engage shareholders with portfolio management tools that allow them to see detailed information about their investments. Such tools eliminate the hassle of traditional mail and increase the ease of access for shareholders


Establish Expectations


When welcoming new shareholders on board, it’s important to set expectations from the start. Shareholders should know what kind of communication they can expect from the company and how often they will receive updates. It’s also important to let shareholders know what information will be shared with them and what will remain confidential. By setting clear expectations from the beginning, you can avoid misunderstandings and build trust with shareholders.


Seek Feedback


Another important tip for shareholder management is to seek feedback from shareholders regularly. This can be done through surveys, focus groups, or one-on-one interviews. Shareholders will appreciate being asked for their opinions and it can help you identify any areas where you need to improve your communication or management strategy. Feedback from shareholders may also be a great source of ideas for marketing, new or improved products, or other recommendations that will positively affect your business.


Be Transparent


Finally, it’s important to be transparent with shareholders about the company’s progress, financial information, and future plans. It’s easy to communicate good news, but a transparent company will ensure even the bad news is accurately conveyed to investors in a timely manner. Shareholders need to have confidence in your company–you don’t get that by denying the existence of problems, but by showing that you are proactive in (ideally) preventing them, identifying them, and solving or mitigating them. In some cases, it might make some sense to put on a rosy public face to the public but shareholders aren’t outsiders; they’re owners. This will show them that you’re committed to keeping them informed and help build trust between the company and its shareholders.


By following these tips, you can streamline shareholder management and build strong relationships with shareholders. With the right tools and communication strategy in place, you can ensure that shareholders are kept up-to-date on your progress and that their expectations are managed effectively. As a result, everyone remains on the same page, which can lead to a more efficient and cohesive shareholder management strategy, improve shareholder relations, and lead to a more successful enterprise.


The Growth of Online Startup Investments

Investments in online startups have been growing rapidly in recent years, and the trend is expected to continue well into the future, with the number of online startup deals growing nearly 10% in 2022, according to KingsCrowd. This growth can be attributed to several factors, including the increasing popularity of crowdfunding platforms and the decline in venture capital funding.


Why the Popularity Surge?


Online startup investing offers many advantages over traditional venture capital funding. For one, it’s much easier to get involved. Platforms like Wefunder and SeedInvest make it simple for anyone to invest in private companies. And because these platforms are online-only, there’s no need to travel or attend tedious meetings. Additionally, online startup investing is much more democratic than traditional venture capital funding. Anyone with a computer or smartphone can participate, which opens up investment opportunities to a much wider audience. With startups being able to grow online instead of requiring a physical presence, this migration to digital-only investing was inevitable.


Online startup investing is much less risky than traditional venture capital funding. In most cases, startups that raise money through crowdfunding are already well on their way to becoming successful businesses. This means that investors are far more likely to see a return on their investment. Overall, online startup investing is a great way for retail investors to get exposure to high-quality investment opportunities. With the right platform, getting started is easy, and there’s no need to be a financial expert. So if you’re looking for a way to get involved in the tech industry, online startup investing is definitely worth considering. 


Growth in Online Startups


With the occurrence of the pandemic and the rise of social distancing, there was a dramatic increase in the number of people working from home. This migration to digital-only workforces has been a boon for online startups. With more people working remotely, there’s been a surge in demand for products and services that can be delivered digitally. And as more and more of these startups pop up, it’s no surprise that online startup investments have been on the rise.


Interestingly, this trend appears to be here to stay. Even as some companies are beginning to allow employees to return to the office, many are opting to continue working from home permanently. This is good news for online startups, as they can continue to count on strong demand for their products and services. So if you’re thinking about investing in online startups, now is a great time to get started.


What’s Next?


With crowdfunding platforms reporting an increase in the amount of fundraising done, sometimes as much as double in the first four months of 2022, this method of startup funding is likely here to stay. This rise in online investing has given everyday Americans the chance to get in on the action and invest in some of the most innovative companies in the world. And as the overall economy continues to struggle, it is expected we’ll see even more companies turning to online crowdfunding platforms to raise money. So if you’re looking for a way to invest in the future, online startup investing is definitely something you should consider. With the right platform, it’s easy to get started, and there’s the potential to see significant returns on your investment. And for startups, this is a great way to raise money and show your company to a larger audience online.


Investment Compliance: It’s Not Just About Complying

Compliance can be a complex, dynamic task for companies raising capital, and sometimes might feel like an unnecessary burden just to stay in the good books of regulators and their seemingly arbitrary requirements. However, compliance can have other added benefits when managed correctly and introduces new efficiencies and trust within the regulatory environment. Some of these benefits include:


  1. Avoid unnecessary costs and delays: When it comes to managing compliance, one of the most important things to keep in mind is that it helps protect your company from regulatory risk. While failure to meet regulatory requirements can itself create costly delays, taking shortcuts and merely going through the motions of compliance can create a risk of much more costly liabilities and litigation. 


  1. Understand shareholder base: Another benefit of managing compliance instead of controlling it is that it allows you to understand your shareholder base better, and identify and engage with your shareholders more effectively. When you know who is investing in your company, you can tailor your messaging, convert investors into ambassadors and build trust and confidence with investors.


  1. Identify high-risk investors: One of the critical functions of compliance is to help identify and flag high-risk investors, protecting the company from both regulatory and reputational risks. Is the investor on any blacklists that would make them ineligible to invest? By managing compliance, you can more easily identify investors who may pose a threat to the company and take steps to mitigate that risk.


  1. Make continuous improvements: Managing compliance instead of controlling it helps create a continuous improvement process. Active engagement with the compliance process can help you to identify potential shortcomings and anticipate regulatory changes before they happen. This gives you the foresight to adapt when they come, or even allows you to enjoy a competitive advantage over competitors who may be blindsided. This is critical in the ever-changing landscape of compliance.


Investment compliance is not about control but learning to effectively manage this dynamic task. By understanding and managing compliance, companies can avoid costly penalties and fines, better understand their shareholder base, identify and flag high-risk investors, ensure that all the correct information about an investor is captured, and create a process for continuous improvement. 


What Kind of Data is Relevant for Private Equity?

The world of private equity is shrouded in a certain amount of mystery. What data do private equity firms use when making their investment decisions? What kind of research is needed to identify opportunities in this market? With the private equity markets raising over $665 billion in 2021, up from $521 billion in 2020, the use of data for private firms is becoming more crucial than ever. This blog post will look at the data types most relevant for private equity investors and how this information can benefit them in certain situations.


The Role of Data in Private Equity


Private equity is a type of investment generally reserved for high-net-worth individuals, venture capitalists, and institutional investors. However, these opportunities are being afforded to more individual investors thanks to the JOBS Act. It is an investment strategy that involves buying stakes in companies that are not publicly traded on stock markets. Private equity firms, in particular, typically have a longer time horizon for their investments than other types of investors and often are willing to invest in companies with high growth potential.


For these investments, investors may rely heavily on multiple data sources to provide insight and justify investment decisions. These sources may include:


  • Financial data is relevant to PE firms because of the need to monitor a company’s financial health. This data can help PE firms identify potential risks and flag companies that may be in trouble. Financial data can also help firms assess a company’s growth potential, allowing them to make more informed investment decisions. 
  • Operational data is relevant to PE firms because it helps them understand a company’s business model and evaluate its efficiency. This data can help firms identify opportunities for cost savings and process improvements. 
  • Market data lets PE firms know what’s happening in specific industries and understand where there might be opportunities for companies they own to gain or lose market share. It also helps firms keep tabs on broader industry trends that could present opportunities or threats to their portfolio companies.
  • Alternative data allows firms to track a company’s performance in real-time and make more informed investment decisions.


Data is an essential part of the private equity investment process, which firms must consider when making investment decisions. Private equity firms often rely on proprietary data sources, such as data from the companies they own or have invested in, to make investment decisions. They also use external data sources, such as public market data, to corroborate what they see from their data sources. 


The Importance of Data


With the increasing importance of various types of data, private equity firms must be able to access and analyze this data to stay ahead of the competition. Firms that can effectively use data will be well-positioned to make informed investment decisions, improve their portfolio companies’ performance, and generate better returns for their investors.


Beyond traditional data sources, alternative data is becoming increasingly important for private equity firms. This data can come from various sources and helps PE firms better understand the companies they invest in, make better investment decisions, and provide more hands-on operational support to their portfolio companies. Alternative data can help PE firms corroborate what they are being told and get a complete picture of the company they are interested in investing in. Alternative data can also help with operational decisions after an investment has been made. The ability to crunch a company’s proprietary data and glean insights into broader industry trends is crucial to helping a private equity company increase its market share, improve operational efficiency, and ultimately time the exit correctly. Therefore, a practical application of alternative data can create a virtuous cycle for private equity firms: better investment strategy, selection, execution, management, and realization, driving improved returns and increased LP demand. 


Any one source of data may not provide the entire picture of a potential investment, making it critical for private equity investors to analyze a wealth of data before making an investment decision. Overall, data can help to illustrate patterns and opportunities within the private equity space.

What are the Benefits of Having a Diverse Investment Portfolio?

Building a diverse investment portfolio is one of the smartest things you can do for your financial health. By spreading your money across various asset classes, you can reduce your risk and maximize your return potential. Keep reading to explore the benefits of diversifying your investments and learn some tips for creating a well-rounded portfolio.


Benefiting from a Diverse Portfolio


A diverse investment portfolio is spread out across several different businesses, industries, and asset classes. This reduces the risk that any single investment will fail, making your overall portfolio more resilient to economic downturns. This is done by having less than 50% of your entire investment portfolio tied to any specific business, country, or industry. Instead, a good risk-averse strategy for investing would be spreading out investments among assets as much as possible: like investing in 10-20 companies, each with 7.5-10% of your investment capital in each. This will form a far more robust investment portfolio. It is worth considering a diverse investment portfolio, even if you are a more experienced investor, as it will help balance risk and reward.


The benefits of having a diverse investment portfolio include:


  • More resilience: A diverse investment portfolio is more resistant to economic downturns as it is not reliant on one specific industry or sector.
  • Better returns: A well-diversified portfolio will typically outperform a non-diversified one over the long term.
  • Reduced risk: By spreading your investment across many different businesses, industries, and asset classes, you are less likely to lose everything if one particular investment fails.


When deciding whether to invest in a diverse range of asset classes, you must consider your investment goals and financial objectives. For example, an investor with less experience and fewer aversions to risk may choose to invest in high-risk assets. In contrast, investors with more experience or less risk tolerance may shift their focus to lower-risk assets for diversification, such as fixed-income investments. Both investors will be able to diversify their portfolios, however, this diversification is based on a strategy they feel most comfortable with.


Systematic vs. Specific Risk


Systematic risk is the inherent risk in an investment that cannot be eliminated by diversifying your assets. This type of risk is also known as market risk, and it affects all investments in the same way. For example, a stock market crash will affect all stocks, regardless of whether they are in different sectors or countries. This type of risk is impossible to eliminate and must be considered when making any investment.


Specific risk is associated with one particular investment, such as a company going bankrupt. This type of risk can be diversified away by investing in different companies or assets. For example, if you are worried about the possibility of a company going bankrupt, you can diversify your portfolio by investing in other companies in different industries.


Diversification is important because it allows you to reduce the overall risk of your investment portfolio. By investing in various assets, you can minimize the impact that any one investment has on your portfolio. For example, if you invest only in stocks, then a stock market crash will significantly impact the value of your portfolio. However, if you also invest in bonds, the stock market crash will not have as significant an impact because bonds will still be worth something. Diversification is not a guaranteed way to make money, but it is a way to minimize risk.


Tips for a Diverse Portfolio


When it comes to investing, it’s always important to diversify your portfolio. This way, if one of your investments fails, you still have others thriving. Here are some tips for diversifying your investment portfolio:


  • Invest in various industries: This will help minimize the effects of any one industry downturn. Allowing you to see growth in other sectors still.
  • Spread your investment across several companies: This will help ensure that if one company fails, others still have the potential to make you money.
  • Invest in a variety of asset classes: This includes things like index funds, bonds, equities, commodities, and dividend stocks. This will help you balance risk and reward.
  • Choose the right mix of investments for your situation: This will vary depending on your financial goals, objectives, and your risk tolerance.


By following these tips, you can help to ensure that your investment portfolio is well diversified. Even with a diverse selection of assets, it is essential to monitor your portfolio regularly to confirm that your continued investment is still in-line with your goals, protecting you if one of your investments fails.


If you’re looking to explore your options for investments, consult your financial, tax, or investment advisor. You should also be aware of and accept the risks of investing. This article is not financial advice.


This post was adapted from content by our KorePartners at Rialto Markets. You can view their article here.

What is a Fund and How Can it Utilize RegA+?

In the traditional sense of a fund, you may be thinking of something like a hedge fund, or other sort of entity that invests in smaller portions of other entities. However, these types of funds are not able to raise capital using Regulation A. So when it comes to RegA+ exemptions, what is a fund and how does it work?

In 1940, the Investment Company Act was passed into law, regulating how investment companies are organized and they types of activities they are permitted to conduct. This law also specifies the requirements for various types of funds, including open or closed-end mutual funds. However, under Regulation A, companies that fall under this definition of an investment company are prohibited from using the exemption to raise investments.

For a “fund” to utlize RegA, it is required to have an exemption from being an investment company. Some rules do apply here, such as the exemptions of having less than 100 investors or having certain qualified investor are not applicable. In the case of Regulation A+, a common exemption is that the fund is not investing in securities. Instead, it may be investing in assets such as real estate or collectibles.

Other considerations must be taking into account when trying to have the offering qualified by the SEC, such as being able to explain how investors will be getting their money back. For RegA+, funds must also have a business plan in place. For example, they must define the types of companies they are looking to invest in or acquire, especially by defining which companies specifically.

However, the process is generally complex, and requires careful planning and discussions with legal advisors to ensure that the raise is done compliantly and according to SEC regulations.

What is Regulation S?

It is essential to be familiar with the different regulations that govern how companies can raise capital in today’s business world. One important rule is Regulation S. This article will give you a basic overview of Regulation S, how it affects businesses, and how companies can use it to raise capital.


What is Regulation S?


Regulation S is a set of rules that govern security offerings to offshore investors. It is an attempt by the SEC to clarify its role in regulating securities offerings sold by US companies outside the United States. The regulation allows companies to offer and sell securities without registering the offering with the SEC, as long as the securities are only offered and sold outside of the United States. This excludes investors within the US from participating in the offerings. If an offering is for foreign and domestic investors, it would not fall under Reg S exemptions because it would have to be registered with the SEC.


Benefits of Reg S


Regulation S is an important securities regulation because it allows companies to offer and sell securities offshore without registering with the SEC. This is important because it enables companies to raise money from investors worldwide, and it also protects investors because it ensures that all offerings are made lawfully. At the same time, it enables companies to have a greater reach for their security offerings, as they can now globally raise money from investors all over the world.


As it was designed, Reg S was always intended for large transactions made by large companies to sophisticated investors. The primary use case of Reg S is still the Euro bond or an extensive offering by a U.S. or foreign company that is made outside the United States. Because Reg S can be used for such a large-scale offering by large corporations, companies will always continue to use it as an option when they need to raise funds globally.


The Pitfalls of Regulation S


The problem is many companies do Reg S offerings incorrectly in this particular space of crowdfunding. Many think all they need to do is sell to somebody outside of the United States, but they ignore that Reg S has three separate categories. These categories are based on the likelihood of the transaction being made in the U.S. or the securities returning to the U.S. The most effortless use case of Reg S is a foreign company selling securities under their own rules. An intermediate use is a reporting company registered with the SEC. For startups, the rules of non-reporting U.S. companies are stricter, but many businesses are not complying with these rules.

How Can Companies Keep Their Offering Out of the US?


No offer sold under Reg S should be advertised or be made known in the U.S. To this effect, companies should Geo-fence any offering site so individuals with U.S. IP Addresses can not see what you are offering. However, if you have Geo-fenced your offer and implemented the proper protections to ensure a US investor cannot invest, and someone found their way around it, it’s not on you. Companies do not need to police the internet, but they should ensure that their Reg S offerings are only available internationally with Geo-fencing. 


While Reg S does not have as wide of a use case as Reg A or Reg D, Reg S is helpful if you feel you will exceed the $75 million of Reg A and can capitalize on international investors. However, companies must be aware that Reg S only tells how to comply with the U.S. rules, not another countries regulation. With most countries having restrictions on making offerings to less sophisticated investors, you want to ensure you meet all these standards if raising capital internationally. 


The Regulation S exemption was implemented to help companies raise capital from non-US investors without SEC registration. It has its benefits, but it is not always accessible or appropriate for every company.

How to Read a Startup’s Financial Statements

This article was originally written by our KorePartners at StartEngine. View the original post here.


When considering which startups to invest in, there is some key information prospective investors would want to review and understand before making any investment decision. A lot of the information is presented to you on campaign pages, but if you want to review more detailed information about a company, you need to look at their:

  • Form C and “offering details” (for Regulation Crowdfunding offerings) or
  • Offering circular (for Regulation A+ offerings)

There are links to these documents on all of the campaign pages on StartEngine, so that you can review them, but they can contain a good deal of complex terminology that can be hard to understand.

One area that can be complicated to grasp is the company’s financial statement and the related analysis. It is one of the primary types of information prospective investors review to gain a glimpse into a company’s overall financial health.

Financial information can also help you identify trends of the business over time, so you get a better idea of the company’s potential future performance based on historical results. It can also provide you with a means of comparing a company’s performance to other companies in the same industry and stage of growth.

To make it easier for you to accomplish this, we have outlined some key terms and financial concepts to make it easier for you to review and understand a startup’s financial statements.

Note: a typical set of financial statements will include a balance sheet, income statement, statement of cash flow, statement of shareholder equity, and supplement notes. 

Income and Expenses

At some point in its lifecycle, a company must generate a sufficient amount of income to survive and grow (otherwise, it will continue to need outside sources of funding). So, how can you tell how much money a company is making, and how much it is spending? To determine this, you’ll need to take a look at the company’s Income Statement (for Regulation Crowdfunding’s offering details) or their “Statement of Operations” (for Regulation A+’s offering circular).

Gross Revenue

The first item presented on a company’s income statement is Gross Revenue. This is the amount of money the company has received by selling its goods and/or services. It is reported on the first line of the income statement, which is why you may come across people refer to gross revenue as “top line revenue” or simply “revenue.”

Cost of Goods Sold

After revenue, a company will deduct Cost of Goods Sold. This can also be called “Cost of Revenue” or “Cost of Services” and refers to all expenses that are directly related to the production of whatever products a company is selling or services it is performing. Sometimes a company may not have these costs on its income statement if it is an early stage pre-revenue startup that has not introduced its product/services to the market. These are also referred to as “variable costs” because they typically rise and fall in line with sales—simply put, producing more costs more.

Gross Profit

Once these costs are deducted, the resulting number is the company’s Gross Profit—the amount of money earned from the product or service sold. It is called a “Gross Loss,” if the sale of product or service loses money. In financial documents, losses are indicated by numbers in parenthesis, so for example ($200,000) would represent a loss of $200,000.

Operating Expenses

Operating Expenses, such as research and development expenses (money spent on innovation and technological advancement), “General and Administrative” expenses (day-to-day costs such as accounting, legal, utilities and rent) and many others are  deducted from gross profit or added to gross loss. These consist of all costs that are not directly attributable to the production of a product and/or service and are generally considered “fixed” costs because they do not rise or fall directly in line with sales.

Operating Profit/Loss

After considering these expenses, the resulting figure (gross profit minus operating expenses) is known as Operating Profit, or Earnings Before Interest and Taxes (EBIT). It is considered an “Operating Loss” or “Loss from Operations” when gross profit minus operating expenses results in a negative value.

Net Income

Once interest expense on outstanding debt and income taxes are deducted from Operating Profit/Loss, you arrive at Net Income. Conversely, if after deducting taxes and interest paid on the company’s debt results in a negative amount, it’s called a “Net Loss.”

This figure is referred to as a company’s “bottom line” due to the fact that it is typically the last item presented on the company’s income statement—much in the same way gross revenue is referred to as a company’s top line. Also, people will many times address a company’s net income or net loss as a percent of revenue, known as its “net profit margin,” which is used to measure a company’s overall profitability.

In the context of investing in startups, it’s worth noting that most companies will record gross losses, operating losses and net losses. Nearly all early-stage businesses are not profitable as funds are reinvested into growth and R&D. It’s why startups raise funding: to build the product that they can sell, to scale their operations to reach an economy of scale, to hire new employees, and a host of other reasons that help them grow towards that point of generating profit.

Net Worth: Understanding Balance Sheets

A company’s Balance Sheet presents their assets (anything the company owns that has value such as cash, inventory, accounts receivable, and real estate) and liabilities (what the company owes, such as unpaid invoices, taxes and debt). When you subtract all of the funds owed by the company from all of the assets it owns, you get the overall net worth (the book value of total assets minus total liabilities) of the company. Let’s start by looking at the asset side of the balance sheet.

Current Assets

The first category you will see is called, “Current Assets.” These are all assets that are considered cash or assets that the company expects will be converted into cash within a year. This includes cash and cash equivalents (any asset that can be immediately turned into cash, such as foreign currencies, short term government debt securities called Treasury Bills, and certificates of deposit), accounts receivable (the amount of money you are owed for products and services delivered that have not been paid for), inventory, prepaid expenses and other items.

Current assets are a major element of a company’s working capital (current assets minus current liabilities) that presents the amount of funds available to pay off short-term or current liabilities, which we will define later. The more working capital a company has, the greater its liquidity, which implies a more healthy financial position.

Long Term Assets

Next up on the balance sheet are Long Term Assets that consist of non-current assets that have a useful life of longer than 1 year. They include: property and equipment; long term investments; intangible assets such as patents, copyrights, trade names and goodwill; and software.

Long term assets are typically presented on the balance sheet at their cost value minus accumulated depreciation, which equals their net book value. Significant growth in this category can indicate that a company is focusing on or moving into or expanding lines of business that require a greater investment in fixed assets.

Current Liabilities

Current Liabilities consist of all expenses that are payable within 1 year, or sometimes within one operating cycle (the time period required to receive inventory, sell it and collect cash from the sale).

These short term liabilities include accounts payable (for example, unpaid invoices to suppliers), lines of credit, short term loans, accrued expenses (owed money for which no invoice has been submitted), taxes payable and payroll liabilities.

Current liabilities are also used in the calculation of working capital in order to ascertain a company’s level of liquidity as described above. This can provide important insight into the company and give you a sense of whether the company is generating enough revenue and cash in the short term to cover its bills.

Long Term Liabilities

Long Term Liabilities are made up of all obligations that are not due within 1 year of the date the balance sheet was prepared or during the company’s operating cycle. Examples of these liabilities are bonds payable, long term debt, deferred taxes, mortgage payable and capital leases.

A company is over burdened by excessive long term liabilities can equate to high monthly payments and lower cash flow, but some amount of long term obligations can be positive. This is due to the advantages that a company can gain through access to long term financing at low interest rates that can help it expand over a longer time period.

Net Worth

Finally, we come to Net Worth, which is most often referred to as “shareholders equity.” It is calculated by subtracting total liabilities from total assets and represents the amount of money a company would have if it ceased operations and paid off all of its debt. It is calculated the same way you would calculate your personal net worth—you would add the total value of everything you own then subtract all the money you owe.

Banks use this number as a metric for lending decisions because if a company’s assets far exceed its liabilities, it indicates a healthy financial position. On the flip side of the coin, if a company’s net worth is negative, it just means that the amount of money it owes exceeds the value of its assets. It should be noted that this is a common financial situation for an early stage startup that is trying to establish a foothold in its target market and continue to grow until its net worth is positive.

Cash Flow

The Statement of Cash Flows presents the net cash flow for a company over a given time period. It shows how cash enters and leaves a company from three main activities:

  • Operations (sales, inventory, accounts receivable, accounts payable)
  • Investing (buying and selling of assets and equipment)
  • Financing (selling of bonds, stock and paying off debt)

If an activity results in cash flowing into the company, it is shown as a positive number. If an activity causes cash to flow out of the company, it is shown as a negative number and placed in parentheses. E.g. $100,000 indicates a positive value, and ($100,000) indicates a negative value.

Cash Flows From Operating Activities

Cash flows from operating activities equates to how much cash has been spent or received from the company’s operations. One item is net income, which supplies cash to a company, or net loss, which indicates a flow of cash out of the company.

Depreciation expense (a yearly decrease in the value of a fixed asset over time resulting from normal wear and tear) and amortization expense (the yearly write-off of the value of an intangible asset over its useful life—e.g., a patent that is granted for 20 years has a 20 year useful life) are non-cash expenses subtracted from gross profit on the income statement. As such, they are added back since they are tax deductable expenses that do not deplete cash on hand.

Changes in working capital (current assets minus current liabilities) are also considered on the statement of cash flows. For example, if the company collects more cash from its receivables, cash increases. If it pays down its accounts payable, then that would reduce the amount of cash the company has on hand.

Investing Activities

Cash used for investing activities include cash spent on long term assets such as real estate, equipment (also called “capital expenditures”), patents, stocks and bonds. Conversely, gains on the sale of long term assets are recorded as cash received by the company. For example, if a company sold a warehouse, that would indicate a positive cash flow, whereas the purchase of stock in another company would constitute a negative cash flow.

Financing Activities

Finally, if a company raises money from investors by issuing securities such as convertible notes or stock, this would result in a positive cash flow to the company. When the company makes payments on its debts or buys back shares, it results in a negative cash flow.


And when all cash inflows and outflows are considered, the resulting amount of cash left over is a company’s net cash position. If a company shows an overall negative cash flow over time, the rate at which it is spending its cash reserves is known as its burn rate. The burn rate is usually quoted in terms of cash spent per month. 82% of startups fail due to the lack of cash flow necessary to survive and grow.

Based on the burn rate, you can figure out the company’s runway, which tells you how long a startup can survive before it will need to earn positive cash flow or raise additional capital (if the company’s finances remain unchanged). A startup’s runway is equal to its total cash reserves divided by its burn rate.

Understanding a company’s financials can help you make a more educated and informed decision when choosing the right startup to invest in. Once you have a good idea of what all of the terms mean, financial information will become easier to understand and faster to review, and in turn, investing will become a more enjoyable experience.

Why are Data and Research Key in the Private Capital Markets?

Data and research are essential pieces of the puzzle regarding the private capital markets. Investors can make informed decisions about where to put their money, and private markets can attract the best investors by having access to accurate and timely data. By conducting thorough research on potential investments, investors can mitigate risk and maximize return potential.


Importance of Data & Research

Private market data provides understanding and predictions of trends, allowing investors to look for companies on a trajectory towards growth and success. Data helps identify these trends and enables investors to make more informed decisions. For example, if a company has the data to demonstrate an upward trend in annual revenue and gross profit, it can be compelling to any potential investor. Investors stay informed of private markets and make informed decisions by private companies providing up-to-date data.


Research is necessary to understand the risks and opportunities of any investment. Research helps investors see that a product or service works as intended and solves a real problem or need. Even if the revenue and gross profit look good on paper, investors won’t go for a product that isn’t solving a real problem or helping people. This is because investors need to be aware of any investment’s potential dangers and benefits before putting their money into a private offering. To make an informed decision, private capital investors need to know all they can about the company they are investing in.


Conducting Market Research

Private capital investors conduct due diligence on potential investments by reviewing various data sets and conducting company research. This information allows investors to understand the risks and opportunities associated with each asset. Research that demonstrates the viability of a product or service helps investors understand the potential return on investment.


There are multiple methods for investors to conduct market research based on private company data. One way is a SWOT analysis, allowing investors to take an in-depth look at a business and its needs to succeed by comparing its strengths, weaknesses, opportunities, and threats. In a rapidly changing market, companies that can demonstrate a trend of growth and success with minimal weaknesses are more likely to attract investment. 


Benefiting from Private Capital Research

Investors need to make quick decisions, so having access to up-to-date data is critical. Data is essential for understanding how a company’s market performance affects private company growth. The current market performance also influences an investor’s decision on due diligence on potential investments.


Private market data helps paint a more accurate picture of the company and its operations, which can be helpful for both investors and company employees alike. With accurate data, investors can make better decisions regarding where to invest based on their ROI expectations, company performance, and management effectiveness. Presenting data and research provides private companies with feedback from the market, including information about how potential customers feel, what they think about a product, or how successful a product may be compared to the rest of the market.


The private capital markets are a haven for risk-averse, long-term investors. With the correct data and research, investors can make more informed decisions and reduce the risk of investing in a company that may not be a good fit for their portfolio. Private capital markets increase transparency by showcasing company data, drawing in potential investors, and allowing more investment opportunities. Whether looking for funding or an investment, it is vital to understand how data and research can help private capital markets grow.


Nominee vs. Direct: How does this affect investors?

Today, there are many ways to buy and sell securities. For publicly traded companies, 75% of Americans are familiar with investing apps or online accounts. For private companies, many investors in companies invest with a broker-dealer and or maintain their own investments. In the first situation, an investor deals with a broker-dealer who holds the investors’ assets in a nominee account, while the second is a direct investing method controlled entirely by the investor. Both accomplish the same goal, buying or selling securities for profit or dividends, but the effect on an investor varies. 


A nominee is an account held by a broker-dealer, and securities owned by an investor are held as a means of separation between the broker’s business and the assets owned by the nominee account. This separation established a level of protection for the investor. In the event of the broker’s business failing, the securities held in the nominee account cannot be ascertained by any creditor claiming assets. The stocks will still be the asset of the investor, regardless of what happens to the broker. 


The issue that comes forth in this model is that, while regulators and exchanges review these accounts periodically, they do not get checked daily, which opens the door for a bad actor to commit fraud and move the assets without permission. For example, fraud could occur if the broker-dealer ‘borrows’ a client’s assets to keep them afloat, potentially. An even more extreme example would be if a broker was to take all of the money and run, though this is less likely. 


The main thing to consider is that while the investor is the beneficiary of the stock, the broker has the authority to move it and sell it on the investor’s behalf. This is why it is important to look into the investor compensation programs with a broker, and for further protection, separate your assets between multiple brokers. While this option comes with risks, the broker will ultimately handle the operations of the account. If you are working through direct investing, account operations are maintained by the investor. 


With direct investments, the trade-off for increased security is that an investor is responsible for buying and selling decisions. A direct stock plan can allow you to buy or sell stock in some companies directly through them without using a broker. However, according to Inverstor.gov, “Direct stock plans usually will not allow you to buy or sell shares at a specific market price or at a specific time. Instead, the company will buy or sell shares for the plan at set times — such as daily, weekly, or monthly — and at an average market price.” Both options have merit, but the choice is between complete security at the cost of time and energy.