Private shares: To bite or not to bite

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Investing in a privately held company typically entails time and effort to find buyers or sellers of shares. Now a joint venture that was announced in March 2013 aims to make it easier for buyers and sellers to connect.

Although the notion of connecting private-company share buyers and sellers isn’t new, the joint venture that’s called Nasdaq Private Market brings unprecedented scale to the idea, because it includes Nasdaq OMX Group, which runs the Nasdaq stock exchange. Nasdaq OMX expects to have the platform up and running in 2013—no date had been set as of press time.

Jasper Welch, who is the president of National Business Incubator Association, warns that investing in privately held companies requires extra effort to ensure that a company is financially solid, because financial information isn’t available readily the way it is with publicly held companies.

That effort includes asking for financial statements that are audited or at least reviewed by an accountant. Companies should grant this request, although you might have to sign a nondisclosure agreement first.

For new or small companies, you also should pull credit reports on the founders to get a feel for how financially responsible they are. You’ll have to have their permission to do this. At press time, a credit report varies from $9.95 to $15.95 from Equifax, Experian and TransUnion).