Private equity stock

[A nony mous]

One last question, and this is more of a poll than a question...

Does anyone have experience with private equity stock?

Have you had first experience that you can share? Good, bad, ugly, or too soon to tell?

[toofy]

What are your specific questions? My group of 4 docs was assigned 10,000 shares from the PE group that bought us, and we split up the stock evenly, 2500 shares each.

[xraygoggles]

I have private equity stock both via private purchase during a series round of funding, and given equity grants - what's your specific question?

[spiritrider]

The experience of any one private equity investment is at best anecdotal and of little value to other investments. I could tell you of my (negative) private equity investment experiences over the years, but it wouldn't really mean much. If my case they were three different startup founder's stock and converted deferred compensation that I was never going to get anyway. In no case have I or would I invest in private equity with my own money.

People are enamored of the stories of very high returns of publicized companies. The reality is there are far more losers than winners, with many going bankrupt. Even private equity mutual funds managed by professionals have only managed to eak out 0.5% higher returns than the S&P index over the last ten (10) years.

A fundamental rule of investing is too understand the risk of what you are investing in. Yes, private equity may have the possibility of high returns, but that is only if it is the right private equity investment. How do you propose to pick the right one, when so many professional managers fail?

You shouldn't invest in private equity any money that you can't afford to lose. It should be in the category of play money. Remember two other maxims of investing, that especially apply to private equity:

1. If it sounds too good to be true, it probably is
2. Be wary of any investment that someone is selling

[A nony mous]

toofy @xraygoggles

Thanks for the responses. My question was specifically for those who recorded equity as part is a medical practice sale.

Did the value increase? Were there cash out opportunities? These sales seem to go to entities whose goal is to flip “flip” after a few years…. Did that happen and to what effect?

One consultant we spoke with has the opinion that the stock should be considered fairly valued, but that it would be a mistake to assume growth. Receiving a percentage of the sale as equity is part of the transaction.

[toofy]

The plan for most of these is to buy up a bunch of practices and sell them as a group a few years later. That's where the bigger money is, in that next transaction.
Our practice sale was a little different that most. We didn't really "sell" our practice yet. We basically joined a group that is accumulating around 50 practices over several years. The plan is to sell all the practices around 2025 to one of the PE groups buying these up. That's the "flip" where the bigger money is and this allows us to participate in that transaction instead of giving everything up now. So for us, the stock shares are worth nothing right now.

[xraygoggles]

toofy @xraygoggles

Thanks for the responses. My question was specifically for those who recorded equity as part is a medical practice sale.

Did the value increase? Were there cash out opportunities? These sales seem to go to entities whose goal is to flip “flip” after a few years…. Did that happen and to what effect?

One consultant we spoke with has the opinion that the stock should be considered fairly valued, but that it would be a mistake to assume growth. Receiving a percentage of the sale as equity is part of the transaction.

I guess my situation is different, since I was buying/given equity in the larger company with PE backing buying out the smaller practices. For me, the equity has been growing at an incredible rate (it has 10x in ~8 years or so undiluted, but I didn't get in until 3 years ago).

But it sounds like you are on the other side, selling a practice for cash/equity?

[A nony mous]

I'm not sure it is different or not. We've sold the practice. Money upfront is 75% cash and 25% equity. The cash was enough to make it a good deal, the equity could make it a great deal. The deal is done, but I'm curious for others experiences. The stated goal is that it should gain in value 3-5x in 3-5years. (Which amounts to a 25%-70% CAGR). The company we negotiated with and did not sell to just flipped their stock at a 35% CAGR, so I know it's possible.

Either way the deal is done. I was just curious for some real world examples. I know in the startup world, equity is worth zero until proven otherwise. I wanted to hear experience with those who've been through it on the medical side.

[xraygoggles]

I'm not sure it is different or not. We've the practice. Money upfront is 75% cash and 25% equity. The cash was enough to make it a good deal, the equity could make it a great deal. The deal is done, but I'm curious for others experiences. The stated goal is that it should gain in value 3-5x in 3-5years. (Which amounts to a 25%-70% CAGR). The company we negotiated with and did not sell to just flipped their stock at a 35% CAGR, so I know it's possible.

Either way the deal is done. I was just curious for some real world examples. I know in the startup world, equity is worth zero until proven otherwise. I wanted to hear experience with those who've been through it on the medical side.

I get what you are saying now.

Yes, you're right, for the most part the equity is worthless, unless the company is acquired, IPO, or there's a distribution. Sometimes they also buy the equity back at current valuation if you leave, but that's highly variable.