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Buying More Private Stock

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I got wrapped up in writing a few other articles; I should have written about this large investment earlier. For the second time in twelve months, I made a very risky investment buying stock options. (You can read about my first risky investment here.) I have invested over $5,000 this time. I bought the stock options that had vested. Using the last round of funding as a guide, the stock should be worth nearly $15,000 now. Of course the catch with a privately funded company is that I can't just choose to sell the stock. I believe I have three options:

  • Wait for the company to go public - The dream of an IPO is so 1999 isn't it? Well that's the hope here. In this scenario, I would have stock shares with a broker that I could sell just like Microsoft or Google stock.
  • Hope for a public company to acquire my former company - If that happens, my stock would get exchanged for this new public company. Like above, I'd have public stock that I could sell easily.
  • Contact my previous company about my options - I believe I could ask them to buy these shares back from me at the market rate. If they decline (and the probably would), I believe I could offer to sell them privately. This is how the sale of private stock worked at the company before this most recent one.

It was very difficult to turn down an instant 200% gain - even if I can't capitalize on it now. It was a tough decision - only made tougher by their business model. I, and many of the people I worked with, question the business model. I see the technology becoming obsolete in 5-10 years. However, as it stands now, Fortune 500 companies are looking to partner and become investors. I can imagine Google acquiring the technology; it almost makes too much sense for it not to happen.

Are two risky bets better than one? I suppose I did diversify myself to a small degree. If either company succeeds, it will likely be one of my best investments.

Last updated on January 21, 2008.

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6 Responses to “Buying More Private Stock”

  1. Money Management and You says:

    I personally try to avoid IPO’s since they are so volatile. However it seems that you have a very good understanding on the technology and its uses. As Peter Lynch once said “invest in what you know”, this seems to be exactly what he was referring to.

  2. Lazy Man says:

    Keep in mind that I’m getting Pre-IPO prices. Sometimes you’ll see companies IPO for $10-12 a share. If that happens buying at $1 a share (not necessarily my price, but you get the idea) is a great deal.

  3. aa says:

    Make sure the company doesn’t go bankrupt before going for an IPO or getting acquired!

  4. Lazy Man says:

    aa: That’s the risk I take. It is a company with enough deals from Fortune 500 companies to make me take it.

  5. Cliff says:

    I don’t know man you could have gone to the super bowl with that cash. But seriously, 5 years to obsoleteness that kind of cutting it close.

  6. Lazy Man says:

    That’s why I call it a risky investment. Five years in the start-up world is more than you think.

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