Cashed-up investors looking for private companies: Survey

Entrepreneurs should obtain wholesale investment as quickly as possible or they will face a fight for capital when the economic recovery finally arrives, according to a new survey.

The survey, by Wholesale Investor, reveals private investors are in an extremely bullish frame of mind, with 26.5% of investors surveyed claiming now is the “best” time to invest, with a further 55% saying now is a “very good” to invest. Only 1% believe now is not a good time.

About 59% of investors say they are looking to invest in private companies, compared with 17% of investors who are looking for direct property investment and 16% in direct equities.

Additionally, 29% of investors are surveying at least one business opportunity per day, with 68% most interested in direct equity investments. The survey also shows that investors are cashed up, with 34.5% having $1 million or more to invest.

A massive 50% of investors are looking at the green tech/clean tech industry for investment, followed by 41% at internet and IT investments, 35% at financial services and 33% at property.

Media and telecommunications are the industries with the least amount of investor interest, at 19% and 14% respectively.

Reuben Buchanan, director of Wholesale Investor, says now is the perfect time for entrepreneurs to seek investment, as investors will be looking for private companies that will provide good returns in a future IPO.

“If you are a private company, you cannot wait to seek investment because in a couple of years you are competing with a market of IPOs. Remember back a couple of years when there was a float a day. For a private investor, it’s easy for them to stick their hand into a float, and they can usually make 20% or 30%, but right now there are no floats happening.”

“A lot of the capital these guys have is sitting around in cash, so they are looking around for opportunities. If there are any entrepreneurs looking for capital, it is a mistake to wait for the market to recovery to look for it. When the market recovers, the investors have already invested their cash and it’s too late.”

Buchanan points to survey results which show that 77% of investors believe a strong management board is the most important consideration when evaluating an investment opportunity. A massive 85% would invest if the company has a strong board and was in the investors’ preferred sector.

“A lot of investors have nothing to do with the company, and so if you’re not running the company you want a good board of management. If the board is weak, they’re going to lose money.”

About 51% of investors also said proof of the business concept is the most important factor, followed by 50% who believe the sector is the prominent consideration.

Buchanan says private companies have the best opportunity to obtain investment, but entrepreneurs need to understand that investors work in a manner contradictory to broader economic conditions.

“While investors believe now is the best time to invest, we will see that figure drop as the market moves away from the peak. Investors are now looking into more private companies, the smaller opportunities that will make them money in a few years’ time. You cannot wait, because when these companies are making money on an IPO these investors will believe it’s not the best time to invest.”