I am interested in seeking out local private companies that are interested in raising additional capital by taking on limited partner investors. Is this something that even happens? Is this even a good idea? If so, what are some ideas on how to find and talk to said companies?
Investing in an existing company is almost like buying a house, or even becoming an "Angel investor" in a start-up.
Before you start the process, decide how much you want to be involved in the day-to-day and which industries you would feel most comfortable in. The latter is an important consideration since you would have to know sufficient about the industry in order to evaluate the quality of your prospective investment.
Searching for a suitable business is a time-consuming process:
- Newspaper adverts: many companies looking for new partners/capital will take to advertising in the local or trade press; some of these are businesses in real trouble, so take care;
- Business brokers: as with houses, so with businesses, specialist agents have businesses on their books which they are looking to sell or find partners for; again, as with houses, brokers make commission from the business so they don't necessarily represent your interests;
- The web (obviously): there are a large number of websites specialising in listing companies; I found Business for Sale using a search and make no claims about it;
The guidance for evaluating any company has been answered in another question, so I'll simply link.
Most business owners are looking to their businesses to provide them a pension, so they often look to sell around retirement age. Buying such a business is tricky - you may be assisting the next generation to finance the purchase which can have it's own struggles.
Ideally you'll be looking for a young(ish) company with proven sales and which is looking to finance growth in an optimal way. Such a company may have many options for raising capital so you'll be competing to invest.
As to whether or not it's a good idea... KFC only became a household name and global franchise after Pete Harman joined Harland Sanders as a partner. Richard and Maurice McDonald may have founded McDonald's but it was Ray Kroc who made it a success.
New partners bring in new ideas and fresh energy which the original entrepreneurs may have lost during the difficulties of starting out.
But that goes back to my first query; just how much do you want to get involved?