Banking

A chief investment officer breaks down how to find private-equity opportunities with 100X potential — and shares 16 examples on his radar now

  • It’s easier for investors today to put money into private-market firms than before.
  • Meb Faber shared in a recent post his strategy for identifying private-market opportunities.
  • He also listed 16 companies he invests in now. 

For the average person, investing in a company is traditionally only feasible after it’s gone public on an exchange.

But by the time a firm files for an initial public offering, they’ve often already seen massive growth, meaning retail investors miss out on meaningful appreciation. 

Things are different now, though, and investors have better access to private market opportunities. They have compelling reasons to: with interest rates near rock bottom, the search for yields outside of traditional assets like bonds has increased the allure of alternative investments. Also, companies are staying private for longer, and the market for them is growing as public equity market shrinks.

Still, since less is known about these firms than public companies, it can be difficult to know how to select which ones to put money into.

In a recent post, Meb Faber, the chief investment officer at Cambria Investment Management who says he has invested in more than 250 private-market companies, broke down how investors can approach the not-yet-public investing landscape — and invest in companies that have the potential to grow your investment by 100 times. His firm manages $502.4 million in assets.

Faber cited Google, Amazon, and Snap as three examples of companies that have seen up to 100x growth from early angel investments — and he shared how investors can spot similar opportunities today.

From a mindset perspective, Faber recommends keeping expectations low to start out as you learn how to identify companies and spread out capital thoughtfully. Some companies will fail, he warned, but that is part of investing in private market companies.

He also recommended coming up with a plan of how many firms to invest in, and how much money you want to invest per year. 

Patience is also an important element of private market investing, he said.

“Prepare to see your money locked up for years…prepare for the unpleasant feeling of watching some of your companies go bust…prepare for some wins, along with plenty of ho-hum returns…prepare for dilution…prepare for three-to-seven years of twiddling your thumbs before any fireworks happen (hopefully sooner)…prepare to be surprised when your favorite deals don’t do much and the boring ones take off,” Faber wrote.

Faber also shared details about his own specific process. First, he said he looks for companies valued between $5-20 million, which tend to be riskier than more mature companies. This usually means investing during the A series phase.

He said he aims to invest in 50 companies per year. This is because vast outperformance of one company can bring up the average return of an entire portfolio dramatically.

Next, he said he typically steers clear of companies that haven’t launched yet because he wants to see an actual product.

“So many startups tell you what they’re going to do, but I prefer to see the ones that already have a little of that ‘product market fit.’ I tend to bypass pre-seed companies unless I know the founder or absolutely love the idea,” Faber said. “Other investors are willing to bet on just an idea or founder. And that’s cool too, you just have to find what works for you. This is not a one-size-fits-all operation.”

Faber also likes to target specific themes he cares about. He focuses on industries like biotech, aerospace, and others, but also businesses that make processes more seamless — or reduce “frustration” — across a number of industries.

16 private-market companies Faber invests in

Faber gives the entire list of companies he invests in at the end of his post. He also has a Twitter List that follows the accounts of the companies he invests in. 

But he also highlights several of the companies in the post. One is Homelister, which is disrupting real estate. Another is AdQuick, which is disruptive in the advertising space. A third is Steezy, which teaches people to dance from home. 

Others Faber highlighted for the unique nature of their concepts — like a space gas station provider and a high school basketball streaming website — include: Axiom Space, Fellow, DroneSeed, 54 Gene, Bubble Hotels, LeagueSide, BallerTV, Ashvattha, Papa, Ossovr, Zedd Run, Inkbox, and Orbit Fab

Faber invests in private market firms like these through platforms like AngelList, Bioverge, WeFunder, The Syndicate, Republic, and EquityZen.

To allocate funds from a retirement account into private market firms, Faber recommends AltoIra.



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