Entrepreneur Boom Fuels Private Equity and Private Lending Opportunities for Self-Directed IRA Investors
Estimated reading time: 5 minutes
Everybody knows Steve Jobs’ name, but have you heard of Mike Markkula? Markkula was a young retiree who invested in helping Jobs and Wozniak make Apple what it is today, and there’s no doubt it was a great investment!
Our world needs entrepreneurs with ideas and dreams, but it also needs investors to make those dreams come true.
One surprising outcome of the last two years is that the pandemic has created a boom of entrepreneurs, new businesses, and new investment opportunities. Over the last two years, we’ve all had a front row seat to watch the American entrepreneurial spirit in action as small business owners proved their resilience and ability to pivot in tough times.
What Does Entrepreneurial Growth Mean for Investors?
Well…for people with self-directed IRAs (SDIRAs), there are a growing number of opportunities to invest in small business owners through private equity or using debt-based financial instruments. If you haven’t considered these two assets for your SDIRA, you might want to take a look at some of our resources linked below and learn about the ways that both private equity and private lending investment options can help you diversify your portfolio.
With private equity you can invest directly into private companies that are not listed on a public exchange. While private equity is often for larger, more established businesses, venture capital is the sector of private equity that often invests in riskier, private startups.
Private lending, sometimes called peer-to-peer lending, is the process of lending money to businesses and individuals. It allows you to use your assets like a bank and invest in projects that matter to you.
Whether your strategy includes private equity, private lending, or both, the entrepreneurial boom we are experiencing right now is propelling these types of investment options for SDIRA investors.
And we love this quote by Micheal Dell because we think it sums up why entrepreneurs have the potential to be such great investments.
“Real entrepreneurs have what I call the three Ps (and, trust me, none of them stands for 'permission'). Real entrepreneurs have a 'passion' for what they're doing, a 'problem' that needs to be solved, and a 'purpose' that drives them forward.”
Been Thinking about Investing in Small Businesses?
If you’ve been thinking about investing in local businesses or start ups with your SDIRA, then you probably know that you will need to carefully research the people and businesses you choose to invest in.
We’ve put together this two-part series to help you learn more about the current outlook for entrepreneurs and small businesses, so that you can investigate potential opportunities as you invest with your SDIRA.
Why Does Someone Choose to Be an Entrepreneur?
There is no way we could describe a singular vision of the wildly diverse group of American entrepreneurs, but that doesn’t mean that we can’t provide you with some great information. Understanding more about entrepreneurs can provide insight for self-directed investors who are investing in small businesses and startups with their retirement funds.
Global Entrepreneurship Monitor reports that 16% of the adult workforce in the United States are entrepreneurs. That’s 31 million entrepreneurs in the US alone, and over 582 million entrepreneurs around the globe.
The meteoric growth of entrepreneurs over the last several years, reminds us that the American Dream is alive and well. Recently Forbes investigated the way that young entrepreneur newcomers are experiencing a shift in values and looking to have more freedom in their work life.
Why people choose to be an entrepreneur is often highly personal, but a Shopify survey confirmed what the Forbes article had to say when they found that the top two reasons people chose to be an entrepreneur were independence and freedom. A LegalZoom survey, however, found that often people become entrepreneurs because they are dissatisfied with the status quo, and they think they can do what they do better or they want to meet an unmet need. Another article in Small Business Chronicle suggested that entrepreneurs become entrepreneurs because they want to make their business more personal and have control over their success.
Regardless of the exact personal reason that someone becomes an entrepreneur, there is undoubtedly a consensus that entrepreneurs tend to focus on creating opportunities and a better life for themselves and others.
Are Entrepreneurs Happy?
If you are considering investing in a small business, you might be very glad to learn that an overwhelming majority of entrepreneurs are happy with their choice to run their own business. Guidant Financial and the Small Business Trends Alliance’s survey asked respondents about their happiness using a scale of one to five, and they found that the weighted average of responses was 3.95 with 74% of entrepreneurs reporting that they were either “very happy” or “somewhat happy” with their career.
Why should an investor care if an entrepreneur is happy? Research shows that happy people are not only more likely to pursue their goals, but they have also developed skills that make them more likely to succeed. If you’re investing in people, their success is closely tied to your success, so looking for happy entrepreneurs primed for success might be worth the effort.
So What Opportunities Exist for Investors?
With more people becoming entrepreneurs and small businesses and startups proliferating in every sector, investment opportunities are booming as well. Whether you want to invest your retirement funds in start-ups or lend money to entrepreneurs, learning more about the current small business landscape could lead to discovering more opportunities than we’ve seen in the past several years.
And as always, with any self-directed investment, remember that you need to do your due diligence before you invest. Understanding the people and the business you are investing in is an important part of doing your due diligence.
So check back next month when we finish this two-part series and take a look at startup statistics. And make sure you get all our newest content coming your way by signing up for our newsletter at the bottom of this page.