Key lessons from an experienced investor

Investing in private equity companies for the first time can be an exciting but daunting prospect for many investors. Unlike investing in the share market, private equity opportunities can require more detailed due diligence, higher levels of risk, but can also come with high levels of returns.

We sat down with Lewis Hurst, an experienced investor, to discuss the difference between public and private investing, advice for first-time private equity investors, and the importance of having the right mindset.

Investing in private equity vs the share market

Lewis' first foray into private equity investing was in SuiteFiles, a cloud-based document management business, through Snowball Effect in 2018. "Prior to that, I'd been swimming around in the pool of sharks that is the NZX and ASX, which was great. But SuiteFiles was interesting. As a private equity investor, you're not quite in the business, but you have to be business-minded. Whereas when you're investing in listed stocks, you don't have to be as much."

He believes there are key differences between investing in the share market and private equity, namely around pre-purchase due diligence. "With private equity investments, you have to do a bit more research as there's less published information available. Snowball Effect is great at putting together offers and making that information available. With the NZX there's a lot more information out there, newspapers digging out information on an investment opportunity and industry commentary - which you don't necessarily get with private equity investments."

Making your first private equity investment

When it comes to investing in a private business, Lewis believes that private equity has a place in a well-rounded investment portfolio. "Not just for a diversity spread, but also as part of a risk and reward spread. Don't be put off with private equity, but if you're nervous, start small."

Lewis recommends newbie investors listen to their gut when investing in private equity and use it to protect themselves against investment risks. "Use your gut to protect you against the negatives, rather than persuade you of the positives. You can convince yourself that something is a good investment and then not put in the leg work that you need to with private equity investments."

Having the right mindset

Lewis cautions new investors to take their time when considering their next venture. "Investing can be complicated. There are so many things to learn, so many mistakes to make and so many ways of viewing things as well. What worries me about new investors is a lot of them haven't thought about it much. Everyone's been there. You start off in the stock market and the amount of research you do is looking at the line on the graph and considering whether you like the products being sold by the company or not. You feel pretty confident with yourself and throw some coins at it."

However, Lewis advises newbie investors to take their time and learn how to value a company and relate that back to personal financial goals. "Don't follow some formula that you've read about in an investing book. You need to relate the opportunity back to how you're going to get money out of it and how much return you need that investment to make to fit with your financial goals."

Benefits of investing through Snowball Effect

The due diligence required when investing in a private company can put off many potential investors. However, Lewis believes that Snowball Effect has simplified the process for investors and importantly, saved them time. "When Snowball Effect presents retail offers, they're presented in a very easy to understand way."

Investing through Snowball Effect has also provided Lewis with the ability to grow his networks, meet other investors and provided him access to other investment opportunities.