Private Investing - A Rigged System Ripe For Change
Most everyday investors only think about the stock market when it comes to investing.
Sometimes with a mix of bonds if they’re “diversified”, and maybe a dash of crytpo if that’s your thing.
But Bitcoin is just the tip of the iceberg.
There is a whole world of private market opportunities out there, loosely categorized as “alternative investments”, that most people have no idea is even an option, let alone how to go about putting money to work in it.
Private investing is huge, amounting to a near-$12 trillion market in the US alone.
And on average, private funds tend to beat the stock market pretty dramatically. The S&P might have gotten you 10% per year over the past decade, but later stage private funds were earning around 15%, and earlier stage venture funds were earning 15-20%.
Beyond lack of awareness, an even bigger reason regular people rarely invest in private deals is because, until recently, they haven’t been allowed to. This goes back to Great Depression-era swindles of con men roaming the America’s Heartland, selling pieces of the Brooklyn Bridge to unsuspecting farmers.
The government wanted to put a stop to this. And so it banned the sale of most securities unless it was done on a regulated stock exchange.
Except for rich folks.
This wasn’t necessarily intended as a way to screw the little guy.
The idea was that the wealthy should be sophisticated enough to understand risk—or to be paying advisors who understood it—while working-class Americans were much easier pickings.
And besides, regular people had the whole stock market to invest in.
And that’s the way the rules stayed for pretty close to a century.
But the road to hell is paved with good intentions.
It turns out that the vast majority of value creation for companies (reflected primarily through the growth of their share prices) occurs earlier in their lifecycle, WELL BEFORE THEY EVER GET to the stock market.
This means traditionally, wealthier investors had the opportunity to capture outsized returns, typically through pathways like takeovers or an IPO.
In contrast, most companies on the stock market have already passed that high-growth phase, with much of their value extracted by private equity and venture capital firms before going public. By the time these companies reach the public market, their growth tends to stabilize, offering lower returns compared to the potential of early-stage private investments.
This means that, by the time regular people were allowed to invest in companies, the party was pretty much already over.
By the time you got in, those early investors were getting out.
And they were selling those previously hot opportunities TO YOU, right as those companies were cooling off.
Meanwhile, we hear frequent reports about the rising concentration of wealth in America by the already-rich.
From 1990 through Q3 of 2024, the 1%’s share of America’s net worth climbed from around 22.5% to ~31%.1
That’s a near-40% surge in the increase in wealth among our richest citizens in just one generation!
And that isn’t a coincidence.
The system was rigged to make sure that the rich kept the biggest gains all for themselves.
Fortunately, there were some major rule changes in the 2010s—primarily under the JOBS Act—that finally made it possible again for regular investors to break back in to this side of the market.
It’s called crowdfunding.
Stay tuned, and we’ll give you the full rundown on how you can get involved in this new, leveled playing field.
‘Til Next Time!
Sean Levine
Managing Editor
Disruptor Nation
