These amateur investor groups are another iteration of investment clubs that have popped up around the country for decades. Most of those clubs have sought to channel the collective wisdom of their members to do something that professional investors struggle to do full time.
When putting money into public equities, investors have an out if things go wrong: They sell their shares on the stock market.
Private equity, by design, provides no such escape hatch. An investment in a start-up means investors get their money back only if the company goes public or is bought by someone else.
So do these do-it-yourself private equity investors stand a chance? They might, though a lot of work will go into it.
“I think all of these investors get that if it was easy, everyone else would be doing it,” said Alfred W. Coleman, a corporate partner at Saul Ewing Arnstein & Lehr in Minneapolis, who helped set up the funds created by Dr. Wright and Mr. Prophete. “But a good portion of what was driving this was access and control. They didn’t have access to these pools and investments, so they had to create it on their own.”
The key to success varies.
It starts with how they hear about deals, known as sourcing. Mr. Glaser said Wilmington Trust saw a lot of deals, given the size of its investment capital — $92 billion. But of the hundreds it looks at in any given year, the firm invests in about three. It puts $50 million to $100 million in each one.
Palm Drive Capital, a venture capital firm in New York, has invested in six unicorns, or companies with valuations of a billion dollars or more, since its founding in 2014, said Seamon Chan, managing partner at the firm. Palm Drive sometimes looks at hundreds of deals a week, all in the software industry, and passes on most of them, he said.