As a rule, you need to wait 1 to 3 years before you see our investment ideas are realized. There can be three fundamentally different scenarios when it comes to an investment in private stocks: successful, neutral, and unsuccessful.
Successful scenarios: IPO, direct listing, SPAC deal, M&A deal
As soon as it becomes possible to sell, the SPV sells the stocks and receives the money into the bank account. The money is then distributed among the SPV’s investors according to their original shares.
An M&A deal is not necessarily a positive scenario. If the company proves unsuccessful, it may be taken over at a low valuation.
You can exit the investment at any time after the opening of a transaction. In this case, the investor’s share is sold to another investor in the private equity market.
If exit is initiated by the fund’s organizer, he has to get the consent of the majority of investors (their shares in the SPV must exceed 50%). Moreover, the US law presupposes the “best effort” commitment: the SPV’s organizer can close an investment only if it benefits investors.
Exit at the investor’s initiative is possible if the investor or the organizer has interested parties vying for his share in the SPV. In this case, the organizer is not obliged to look for a new investor or buy back the share at his own expense.
The early exit scenario can be either positive or negative, depending on the stock price in the private equity market.
However, there’s always a chance that a startup may fail to take off. A company may turn out unsuccessful and go bankrupt. This is the main risk of investing in a private company. In the event of bankruptcy, investors lose all or most of their money.