Every investor wants to find the next unicorn, yet they are acutely aware that accomplishing this feat is much more challenging than mere words suggest.
Navigating the intricate landscape of private companies and their financial information can pose significant challenges. For most private companies their financial information is confidential, and if it’s available at all, it’s typically in an unstructured dataset. As a crucial aspect of informed decision-making, understanding the financial health of private enterprises is paramount for investors and businesses alike, so getting access to the right data is critical.
Achieving outsized returns on an investment often requires extensive research to uncover potential deal opportunities and a comprehension review of the of critical market segments and relevant participants. It involves not only identifying the potential of fledgling enterprises but also actively nurturing relationships with them, all while contending with the urgency of outpacing competitors.
However, accessing accurate and comprehensive financial data for these non-public entities often proves to be a formidable task. In this guide, we delve into the complexities associated with acquiring financial insights for private companies, offering strategies and solutions to overcome these hurdles effectively.
Public vs. Private Companies
It’s crucial to grasp the fundamental distinction between a private company and a public company.
A public company is enlisted on a stock exchange, permitting the general public to acquire its shares. Information concerning public companies is readily accessible, often disseminated by the company itself or made available through regulatory filings with the SEC. This data is easily retrievable by either going to government websites, the company’s website or through platforms like Google. As a result, researchers can conveniently obtain details such as company revenue, year-over-year growth, workforce size, and more.
On the other hand, for private companies, ownership shares are held privately by a small group of investors. Unlike public companies, privately held businesses don’t have stocks that anyone can own. The key difference is that a smaller number of people own and trade a smaller number of shares. Often, private companies get money from investors like venture capitalists or private equity firms. This makes them a good choice for people who want to take a big risk in hopes of getting a big reward.
When private companies want to bring in more money to grow, they can either access capital from private investors or choose to go public by doing an initial public offering (IPO). This means they offer their shares to the public, which can bring in more money for the company. Going public lets the company raise capital to either expand its business or provide liquidity for existing shareholders.
That why private can be categorized into two main groups:
- Investor-backed: These private entities have allocated a portion of their ownership to investors in exchange for capital to fuel business expansion.
- Bootstrapped: Bootstrapped private enterprises, also known as “founder-owned” or “pre-transacted” companies, have not secured external funding from investors. Their ownership remains solely in the hands of founders and/or other significant internal stakeholders. Typically, bootstrapped businesses tend to be more nascent in their development, rendering them particularly attractive prospects for private equity (PE) and venture capital (VC) firms.
Why is it Hard to Find Private Company Financial Information?
While a quick online search can tell an investor a lot about a public company, finding financial information about private companies is much more challenging. As per Investopedia’s explanation, a private enterprise, as its name suggests, is typically under no obligation to reveal its financial data to the general public. Privately held companies encompass family-run enterprises, sole proprietorships, and the majority of small and medium-sized businesses.
Given that private companies are not subject to the same regulatory requirements of public companies, there exists neither the necessity nor the motivation to disclose their financial reports. This differs from publicly traded companies, which are mandated to release their financial statements periodically for public consumption.
In the United States, private enterprises aren’t obligated to disclose their financial or operational details to the Securities and Exchange Commission (SEC) or to the public. While private companies are required to file tax returns, these filings remain confidential and are not shared with the external world.
Furthermore, stringent non-disclosure and confidentiality agreements encompass all stakeholders—employees, investors, customers, and partners.
While privately held companies that have secured investor support occasionally announce funding rounds and accomplishments that provide insights into their dimensions, expansion, and earnings, bootstrapped private companies maintain a tight grip on information. Additionally, the earlier a company is in its development, the more probable it becomes for investors to consider factors such as technology, executive expertise, significant milestones, the competitive landscape, and other pertinent data when evaluating the company’s valuation.
Interestingly, a growing number of firms are developing exclusive models and forecasts that leverage data points like these to assess the growth trajectory and investment suitability of bootstrapped companies in the absence of easily accessible revenue data.
How to Get Information on Private Companies
Maximizing your understanding of private companies involves weaving together fragments of data from diverse sources into a cohesive analysis. Utilize the following resources strategically to cultivate a competitive edge against rivals:
- Private Company Websites – In today’s landscape, nearly every company maintains a website showcasing products, management, investors, fundraising details, board members, open roles, press releases, conference participations, and media coverage. Moreover, websites offer resources like whitepapers, videos, blogs, and ebooks, all of which unveil significant insights into private companies.
- Social Media – Private companies, especially those in the B2C realm, utilize social media for customer engagement, feedback, satisfaction, and retention. Monitoring their social media presence reveals additional insights, particularly concerning customer-facing apps, products, and solutions.
- Online Job Platforms – Online platforms such as LinkedIn and WellFound (formerly Angelist) are commonly used by private companies for recruiting. Job listings shed light on skill gaps that companies aim to fill, potentially unveiling product plans, technological trajectories, marketing strategies, and geographic expansion intentions. Changes in job postings also indicate growth and product evolution trends. Moreover, Employee profiles on platforms like LinkedIn provide employment history, professional articles, and interactions. These profiles often divulge valuable information about private companies. Additionally, departing employees might share insights on workplace review sites, offering perspectives on employers, colleagues, and corporate culture.
- Industry News and Opinions – Founders and executives often contribute opinions on technology and trends through news articles, shedding light on their market disruption strategies, challenges, and opportunities.
While private company data exists across these channels, efficiently aggregating it poses a challenge.
Can Modern Technology Facilitate Private Company Data Search?
Historically, investors had to manually assemble information from diverse sources to construct a multidimensional perspective of target companies, a process often consuming days or even weeks, this can have the effect of investors using outdated and inaccurate data.
Thankfully, modern private company intelligence platforms employ advanced technology, AI, and human oversight to gather millions of data points from online and offline sources. These tools curate reliable private company profiles, enabling investors to efficiently identify, research, and engage with bootstrapped businesses.
In essence, a well-designed private deal sourcing platform can:
- Drastically reduce research and due diligence time from weeks to minutes
- Enrich private company data quality, depth, and breadth through powerful search and reporting capabilities
- Accelerate investment, M&A decision-making, and deal closures for private companies
Ultimately, achieving superior ROI hinges on where you seek data, what information you seek, and the tools you adopt for discovery and assessment. Begin your private company research journey with Cyndx’s innovative deal origination platform by requesting a demo today!