WSJ Your Money Briefing - Private Markets Are Opening Up. Should You Buy In?

Episode Date: March 31, 2025

A new wave of platforms is letting individual investors buy into private companies for as little as $5,000. WSJ reporter Imani Moise joins host Dalvin Brown to explain the risks and rewards you should consider before investing.  Sign up for the WSJ's free Markets A.M. newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

This episode is sponsored by Northern Trust Wealth Management. There is more to being a successful entrepreneur than just good business practices. What is it about an entrepreneur's childhood that helped fuel their entrepreneurial spirit? What are entrepreneurs doing to cultivate this spirit in their own children and build a legacy beyond their business? Tune in each month to the Road to Why podcast by the Northern Trust Institute, where host Eric Schapea dives deeper with leading entrepreneurs on these topics and more. Find the road to why where you listen

to your favorite podcasts. Here's your money briefing for Monday, March 31st. I'm Dalvin Brown for the Wall Street Journal. It used to take hundreds of thousands or even millions to invest in a private company. Doing so could send your wealth into the stratosphere. Now all it takes to stake a claim in the next big thing is $5,000. Think about top names like OpenAI, Epic Games, or sports gear company, Fanatics.

These are companies that people are familiar with, but there's not really an easy way to buy in. But what we're seeing now is that there's a whole bunch of fintech companies that people are familiar with, but there's not really an easy way to buy in. But what we're seeing now is that there's a whole bunch of fintech companies that are working to make them more accessible. But with more access comes more risk. We'll talk to Wall Street Journal reporter Imani Moise after the break.

This episode is sponsored by Northern Trust Wealth Management. There is more to being a successful entrepreneur than just good business practices. What is it about an entrepreneur's childhood that helped fuel their entrepreneurial spirit? What are entrepreneurs doing to cultivate this spirit in their own children and build a legacy beyond their business? Tune in each month to the Road to Why podcast by the Northern Trust Institute, where host Eric Schapea dives deeper with leading entrepreneurs on these topics and more. Find the Road to Why where you listen to your favorite podcasts. For years, private markets were the playground of the rich. But today, a growing number of

individual investors are being invited in. Wall Street Journal reporter, Imani Moise, joins me. Imani, you wrote about how the ultra wealthy used to have exclusive access to private company investments. But they don't anymore. What changed? So there's a lot more interest in private market securities these days because companies are staying private for longer.

Think about top names like OpenAI, Epic Games, or sports gear company, Fanatics. These are companies that people are familiar with, but there's not really an easy way to buy in. But what we're seeing now is that there's a whole bunch of fintech companies that are working to make them more accessible. Which fintech companies are we talking about here? I spoke to EquityZen and Forge, which they've created marketplaces where employees in these private companies or early investors can sell their shares if they want to get access to

cash or cash in before a more traditional exit opportunity like an IPO. And before this change, what kind of money or connections did someone have to have in order to invest in a company like OpenAI? You needed to work with a top bank that had these connections. And typically, the minimum investments would be in the millions of dollars.

So if you're a small dollar investor, mass affluent, with only a few thousand to invest, you were pretty much locked out. So now you can get in with just $5,000. affluent with only a few thousand to invest, you were pretty much locked out. So now you can get in with just $5,000. But is bidding as simple as buying stock on an app? Not quite. So the thresholds have started to come down.

But even if you have that $5,000, you'll have to log in, make an account, review the data to make sure that you know what the price per share estimates are and place a bid. But placing a bid doesn't mean that you're going to get it right away. Like if you've traded on an app like Robinhood, typically those trades will go through very, very quickly. These trades still take days to close. And then once you own it, you usually have to hold on to it for a minimum of six months, if not years.

What kinds of returns are people seeing? The industry is really pitching this as a way for everyday investors to get in on the higher returns of fast growing companies. But it's really important to note that private equity or growth equity, which is the other name for these companies, they really don't always outperform the public markets. So, for example, a recent McKinsey report found that in 2024, last year, growth equity, which is again the type of large private IPO companies that we've been talking about here, they underperformed the S&P 500 for the third time in four years. So your returns may not be as high, or there may be no returns at all. What are some of the other

risks involved with investing in a company like this? The other risk is that they're very illiquid. So I spoke earlier about the long holding periods. But what that means is that you really shouldn't be putting money into these investments, that there's even a slight possibility that you're going to want to get your hands on before the ends of these holding periods. I spoke to one advisor who likened it to oxygen. He said liquidity is like oxygen. You don't realize you need it until you're underwater and you don't have it. So maybe if you already have an established portfolio and you have like 10 percent that you think you could play with, this could be a good place for that.

But if you ever think you're going to need the money within a short amount of time, you should probably stay away. I also read that valuations for private companies can be a little fuzzy. How do platforms determine pricing? So that's something else that's new and happening in this market. As of last week, Yahoo Finance is publishing pricing data on about a hundred different large private companies. And the way they get that data is you have the platforms like EquityZen and Forge and they are using the bid ask data that they see coming through on their platform

to chart a market price on a daily basis that reflects what the market is actually willing to pay for these securities because in the past, it's really been reliant on what the private companies or their investors say that they're worth. You also mentioned in your story, which we linked in our show notes, that these deals are only for accredited investors. How does that work? So the SEC says that individuals can qualify as an accredited investor by meeting certain income or net worth thresholds.

So for income, it's $200,000 annually or $300,000 if you're a married couple. And the net worth threshold is $1 million, excluding the value of your primary residence. When the standard was first set, like less than 2% of Americans qualified, but since that number hasn't been adjusted for inflation, about one in five Americans now qualify as accredited. When was that $200,000 threshold set? In the 80s. Has not been adjusted for inflation.

Wow. OK. And if someone is curious about this, like what should they do first? Do you just download an app or should you talk to a financial advisor? I would definitely suggest talking to a financial advisor because for the average retail investor, this is going to be a new asset class. So seek out an advisor that has experience with this asset class and experience with your portfolio so that they can really advise whether or not this is a good idea for you. Why are these investments so much more accessible these days?

Do investors really want them? So it depends who you ask. If you ask some financial advisors, they'll definitely tell you that they have clients who are reading about these really large private companies in the news and they want to figure out how to get a piece of that action. But there is definitely a push on behalf of the industry to attract more retail investors. So in order for them to grow, they need to attract a new investor class. That's WSJ reporter Amani Moise.

And that's it for your money briefing. This episode was produced by Ariana Asparu with supervising producer Melanie Roy. I'm Dalvin Brown for The Wall Street Journal. Thanks for listening. sponsored by Northern Trust Wealth Management. There is more to being a successful entrepreneur than just good business practices. What is it about an entrepreneur's childhood that helped fuel their entrepreneurial spirit? What are entrepreneurs doing to cultivate this spirit in their own children and build a legacy beyond their business? Tune in each month to the Road to Why podcast by the Northern Trust Institute, where host

Eric Schapea dives deeper with leading entrepreneurs on these topics and more. Find the Road to Why where you listen to your favorite podcasts.