A private investor is an individual who chooses to make investments using his or her own money. Typically, the term is used to describe investors who utilize their own resources to invest in a new business or to in some way provide financial aid to an existing business, usually with the anticipation of a return on the investment at a later date. Small businesses often benefit from investors of this type, although it is also possible for individuals or groups to make personal investments in large corporations.
One common example of a private investor is the business angel or angel investor. In this scenario, the investor provides the seed money that makes it possible for an entrepreneur to establish a new company and effectively manage expenses as the business begins to acquire a clientele and create a revenue stream. Here, the private seed investor may be compensated by receiving stock in the new company once it is issued, or be repaid the balance of his or her investment, plus interest.
It is also possible for a private investor to function as a white knight. In this type of situation, the investor is not providing financial support for a new business, but is helping an established business from a hostile takeover attempt. Typically, the white knight is able to secure enough shares of stock to offset the influence of the corporate raider, forcing that raider to abandon plans for taking over the business and selling any shares collected back to the company or to investors who remain loyal to the business. The white knight may choose to retain the shares purchased as part of the plan to avert the takeover, or sell them back to the company owners at a price that provides at least some profit to the private investor.
Choosing to become a private investor usually requires that the individual or investor group have resources on hand that may be used to acquire investments, without creating any financial hardship for the investor. This approach is somewhat different from other types of investing approaches, in that the investor does not borrow money from other sources to fund the investment process. This includes avoiding the purchase of assets with the use of a margin account issued by a brokerage firm.
While private investing can be very lucrative, the degree of risk involved with this particular approach to investing can be significant, especially when investing in new business ventures. In order to keep the risk within reason, investors usually look closely at any opportunity before choosing to commit resources to the project. This includes evaluating the prospects for earning a return, projecting when that return will be realized, and determining what factors could prevent that return from materializing.
