When considering an investment in private equity, investors need
to consider a number of factors.
- Can
a small investor obtain the diversification needed
- Does
the investor have liquidity needs that would prohibit tying up funds for
7-10 years
- Will
the investor be able to fund promised commitments to the private equity
fund when called for
- What
mix of sector, stage and geography is required to provide the best
diversification
In addition, selecting managers requires special due diligence
considerations:
- Can
the investor and manager evaluate prospects for market success
- Understanding
of the markets, competition and sales prospects
- Experience
and capabilities of management team
- Management’s
commitment – ownership, compensation structure, etc
- Opinion
of customers
- Identity
of current investors – do they have particular expertise that lends
confidence to outsiders
- Operational
review
- Have
experts validated the technology
- Consideration
of employment contracts
- What
intellectual property rights have been established
- Financial
and legal review
- Potential
dilution of interest
- Financial
statement (or tax returns, or investor-conducted audit)
