What are ROI options with privately-held company stock?

[Mike]

Hello all.

I'm a novice investor, but I generally understand where your
return-on-investment can come from when buying stock in publicly
traded company's stock. Of course there are other revenue
possibilities, but some common ones would be dividend payouts,
stock-price appreciation, etc. However, what are you choices and
possibilities when it comes to buying stock in a privately-held
corporation?

I have the opportunity to invest in a newly-formed privately-held
company. Without their being market forces in place to set stock
prices, I don't see capital gains on stock being a possibility there.
Also, although things could certainly change in the future, this group
has no desire to go public at some point in the future. They want to
keep the ownership circle small. They've organized in such a way that
if an outside entity wanted to buy the majority shareholder's stock,
they could not because the stock goes back into the company and the
other existing shareholders can purchase those shares with the
proceeds going to the person that wants out.

So what are our income options here? We are not looking for
short-term gains, but rather are in this for the long run. One option
floated was for us to present to this company the idea that given our
$XXXXX investment, we'd like to see a return on that investment which
would double our initial investment over 10 years. So lets say each
year the company would pay out 8% of our initial investment as our
return. We could choose to take that money or rather have the company
reinvest those funds back into growing the business. Either way, at
the end of that 10-year period, we'd receive from the company the
profits we agreed to in the beginning. This approach sounds a bit
like buying a bond or even giving someone a loan. You buy a $10,000
bond yielding X% and you get those payouts until the bond matures and
then you also get back your original investment. We would not get our
original investment back since it would be stock so we'd just keep it
in the company, but other than that, it sounds very similar to debt
instruments.

So what other sort of options do people have for return-on-investment
when they become minority shareholders in a privately-held company?

Thanks in advance.

-Mike

[Peter L]

You are a novice investor, why would you take a position in such a company?
Are you going to be a minority owner with no voting rights? I wouldn't put
my money in this. What attracts you to this investment?


"Mike" > wrote in message
om...
> Hello all.
>
> I'm a novice investor, but I generally understand where your
> return-on-investment can come from when buying stock in publicly
> traded company's stock. Of course there are other revenue
> possibilities, but some common ones would be dividend payouts,
> stock-price appreciation, etc. However, what are you choices and
> possibilities when it comes to buying stock in a privately-held
> corporation?
>
> I have the opportunity to invest in a newly-formed privately-held
> company. Without their being market forces in place to set stock
> prices, I don't see capital gains on stock being a possibility there.
> Also, although things could certainly change in the future, this group
> has no desire to go public at some point in the future. They want to
> keep the ownership circle small. They've organized in such a way that
> if an outside entity wanted to buy the majority shareholder's stock,
> they could not because the stock goes back into the company and the
> other existing shareholders can purchase those shares with the
> proceeds going to the person that wants out.
>
> So what are our income options here? We are not looking for
> short-term gains, but rather are in this for the long run. One option
> floated was for us to present to this company the idea that given our
> $XXXXX investment, we'd like to see a return on that investment which
> would double our initial investment over 10 years. So lets say each
> year the company would pay out 8% of our initial investment as our
> return. We could choose to take that money or rather have the company
> reinvest those funds back into growing the business. Either way, at
> the end of that 10-year period, we'd receive from the company the
> profits we agreed to in the beginning. This approach sounds a bit
> like buying a bond or even giving someone a loan. You buy a $10,000
> bond yielding X% and you get those payouts until the bond matures and
> then you also get back your original investment. We would not get our
> original investment back since it would be stock so we'd just keep it
> in the company, but other than that, it sounds very similar to debt
> instruments.
>
> So what other sort of options do people have for return-on-investment
> when they become minority shareholders in a privately-held company?
>
> Thanks in advance.
>
> -Mike

[Peter L]

You are a novice investor, why would you take a position in such a company?
Are you going to be a minority owner with no voting rights? I wouldn't put
my money in this. What attracts you to this investment?


"Mike" > wrote in message
om...
> Hello all.
>
> I'm a novice investor, but I generally understand where your
> return-on-investment can come from when buying stock in publicly
> traded company's stock. Of course there are other revenue
> possibilities, but some common ones would be dividend payouts,
> stock-price appreciation, etc. However, what are you choices and
> possibilities when it comes to buying stock in a privately-held
> corporation?
>
> I have the opportunity to invest in a newly-formed privately-held
> company. Without their being market forces in place to set stock
> prices, I don't see capital gains on stock being a possibility there.
> Also, although things could certainly change in the future, this group
> has no desire to go public at some point in the future. They want to
> keep the ownership circle small. They've organized in such a way that
> if an outside entity wanted to buy the majority shareholder's stock,
> they could not because the stock goes back into the company and the
> other existing shareholders can purchase those shares with the
> proceeds going to the person that wants out.
>
> So what are our income options here? We are not looking for
> short-term gains, but rather are in this for the long run. One option
> floated was for us to present to this company the idea that given our
> $XXXXX investment, we'd like to see a return on that investment which
> would double our initial investment over 10 years. So lets say each
> year the company would pay out 8% of our initial investment as our
> return. We could choose to take that money or rather have the company
> reinvest those funds back into growing the business. Either way, at
> the end of that 10-year period, we'd receive from the company the
> profits we agreed to in the beginning. This approach sounds a bit
> like buying a bond or even giving someone a loan. You buy a $10,000
> bond yielding X% and you get those payouts until the bond matures and
> then you also get back your original investment. We would not get our
> original investment back since it would be stock so we'd just keep it
> in the company, but other than that, it sounds very similar to debt
> instruments.
>
> So what other sort of options do people have for return-on-investment
> when they become minority shareholders in a privately-held company?
>
> Thanks in advance.
>
> -Mike

[Mike]

Good point!

I understand the downsides such as being a minority voice in this
company basically at the mercy of the majority stockholder (as are the
other investors in this particular situation), but I guess some of
"comfort" in this venture is regarding the people involved. My main
contact at this company is a person I've known for years and trust
implicitly. He even had a hand in introducing me to my wife (and
yes...we are happily married!). The main brains behind this new
company is a person that my friend has personally worked with for many
years and respects his business skills, integrity, etc. He has
started up and run more than one successful company in the past and it
is in a market he knows well, has contacts, etc. Had this been a
situation where I did not know any of the people involved at all, then
I would not even give this a look. They have business coming in and
good prospects for the future. So to me it is not as speculative as
it might sound. I'm more interested in how to frame an agreement of
sorts that indicates and shows how we'll benefit from this venture
financially given that it is not a public company with stock that
trades on the open market.

-Mike

"Peter L" > wrote in message >...
> You are a novice investor, why would you take a position in such a company?
> Are you going to be a minority owner with no voting rights? I wouldn't put
> my money in this. What attracts you to this investment?
>

[Mike]

Good point!

I understand the downsides such as being a minority voice in this
company basically at the mercy of the majority stockholder (as are the
other investors in this particular situation), but I guess some of
"comfort" in this venture is regarding the people involved. My main
contact at this company is a person I've known for years and trust
implicitly. He even had a hand in introducing me to my wife (and
yes...we are happily married!). The main brains behind this new
company is a person that my friend has personally worked with for many
years and respects his business skills, integrity, etc. He has
started up and run more than one successful company in the past and it
is in a market he knows well, has contacts, etc. Had this been a
situation where I did not know any of the people involved at all, then
I would not even give this a look. They have business coming in and
good prospects for the future. So to me it is not as speculative as
it might sound. I'm more interested in how to frame an agreement of
sorts that indicates and shows how we'll benefit from this venture
financially given that it is not a public company with stock that
trades on the open market.

-Mike

"Peter L" > wrote in message >...
> You are a novice investor, why would you take a position in such a company?
> Are you going to be a minority owner with no voting rights? I wouldn't put
> my money in this. What attracts you to this investment?
>