There comes a time in the lives of most investors when they hear—or overhear—talk about a hot startup, often one just getting off the ground. The question many investors have is whether they can get in on the action before such a company goes public. The answer is: “Yes, but….” Opportunities for individuals to get in on these private capital deals are very limited, both because there’s often great interest from large venture capital funds and because regulations all but prohibit small investors from taking part.
Of course, knowing someone on the inside, such as a founder or board member, is the best route to participating in a private fund-raising. Short of that, some advisers say it’s worth trying to contact the firm’s investor relations representative. To gain credibility, some companies may be eager to attract a particular type of investor, such as those who work in the field where the products will be sold. William Doyle, CEO of Duluth (Ga.) startup Vystar, which raised three rounds of private capital to develop an allergy-free latex product, Vytex, sought investors in the medical profession. “It lent validity to our project,” he says.
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