Once a company goes public and the price of its shares go up I guess some investment firms can make money that way. But how do investment firms that invest in non-public companies (e.g. small startups) make money? Do they just keep on investing until the company goes public and they can reap profits (through stock prices etc.)?
In: Economics
There’s only a couple of ways that you can make money off a private company *if you’re investing (buying shares)*:
– **Exit opportunities**: You invest (buy shares) in the company when it’s small… after it grows… you either wait for it to go public (IPO) or for another company to want to acquire it (acquisition). Sometimes, other investors might buy your shares off you or the business might buy them back, but because it’s a private company… it’s a lot harder to do compared to public companies.
– **Dividends**: Most start-ups won’t pay these. It’s where they split the *profits* (may just be out of cash reserves) between the shareholders (if you have more shares you get more amount). As mentioned, most start-ups who want investment won’t start giving cash back to investors as it’s draining money and could stunt their growth.
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