Resources > News>Learn How to Invest Your IRA in Innovative Private Companies

Learn How to Invest Your IRA in Innovative Private Companies

Good Morning. I hope everyone had a great weekend. I’m finally starting to get some feedback on what our clients are investing in and having success with. The following is an article written by one of our clients from South Carolina.

“When I first set my Self-Directed IRA up, my intention was to expand my real estate interests through investment properties. However, as real estate boomed, I was well aware that the market could not continue in its accelerated state. About that time, I got involved in a local group which was forming in order to fund small, innovative companies, predominately in the tech field, in order to bring them to develop in the Hilton Head SC/Savannah GA region. The Group became known as Ariel Savannah Angel Partners, which now has approximately 50 members of various careers and disciplines.

There are 2400 Angel Groups across the country. The groups fund up to approximately $7 million dollars, either individually or through syndication with other Angel groups. This is the dollar level at which Venture Capitalists get interested in funding these firms. Our investments so far have been across a broad spectrum of the industry with healthcare being the predominant player. Our group follows the guidelines of the National Angel Network in its structure and operation. Our group has a designated screening committee that screens 30-40 entrepreneurs and companies every quarter. From that, we cull 1-3 companies that are felt to be a good investment risk and ready for a monthly presentation to the membership. During our monthly meeting, we will hear a presentation and have a follow-up session of Q&A. Our group skills usually make for some in-depth questioning of the presenters. Following that, we are given ballots to vote yes or no on whether or not that company goes to Due Diligence. A yes vote means that a Due Diligence team is organized that will do the requisite inquiries, examine the appropriate financials, and develop a report for the membership with its recommendation.

In addition to the new presentations, our Administrator goes through an agenda of items that includes investment calls on companies that have been through Due Diligence successfully, updates on portfolio companies that we have funded in the past, information on companies that may be looking for second or third round financing, and a look at the next meeting and happenings in the Angel Investment Network.

What we see at our meetings are the most exciting people, concepts, and companies in America. Many of these people have already been successful a number of times and taken companies to exit and have moved on to start a new company. Many are the experts on the planet in their chosen profession, particularly in the healthcare field. I have never had a guest I have taken to one of our meetings that have not been either totally excited or humbled by the experience. It gives you a higher elevation view of what takes place in the entrepreneurial world.

Our investment in a particular company is an individual decision. You can invest or not invest, it is not a vote of the membership with an allocation to each member. The time horizon for an investment like this is estimated at 4-7 years to exit. Our group has been in existence about 4 years and has not had an exit even though we have investments in at least 15 different firms. However, we get updates, and many of these companies are doing exceptionally well, and we can see our investments growing, as CEOs return to our group to update us on their progress.

These investments do not come without a lot of risks. Competing ideas are always at the heals of new concepts. What you rely on is the work of the screeners, the Due Diligence Committee, and your own education and experience in business to make a prudent investment decision after weighing all the risks. A good, diverse inventory of skills in an Angel Group is what it takes to reduce the risk of a bad investment decision. These companies need the funding to be successful. Angel groups make it possible to get a new idea out into the market where it can develop.

My Self-Directed IRA, set-up as an LLC with SunWest Trust holding the shares of the LLC as the custodian, has made it very easy to invest, as well as keep accurate records of investments in these firms, simply by writing a check out of the LLC account to that investment. Doing this type of investing in an IRA will help me better plan the distributions of gains since I won’t be taxed until I have taken money as a distribution.

  • Don B. South Carolina

The purpose of this blog entry is to give an example of how a Sunwest Trust client is successful using their IRA to make self directed investments. This is not to be taken as an endorsement of a particular investment. This is strictly information that was sent to us from one of our clients. 

Sunwest Trust does not offer any investment products or give any investment advice. If you have questions about any self-directed IRA investments, we recommend that you speak with a CPA or tax attorney.

Terry White

About Terry White

I started my business career after getting my degree in Accounting from the University of New Mexico in 1983. My first job was as a controller for a local title company, and in 1987 I started First Financial Escrow, Inc. Over the years I played a part in several startup companies including First Financial Equities, Inc., First Financial Trust, Inc., First Financial Marketing, Inc. and Asset Ventures, Inc. In 1997 First Financial Escrow, Inc. was able to purchase the escrow accounts from Sunwest Bank and changed its name to Sunwest Escrow. As the market changes, Sunwest has grown and changed along with it. Besides my wife, Sheila, we have three boys, two daughters-in-law, one grandson, another grandson on the way and a future daughter-in-law. Sunwest is my passion, and I enjoy coming to work every day to see what will happen next. I enjoy fly fishing, spending time in Colorado, biking and watching my boys play soccer.