How to Invest in Private Companies
Synopsis
Learn how to invest in private companies in Australia, compare direct investing with ASX-listed private equity, understand key legal documents, risks, due diligence requirements and the investment options available to retail and sophisticated investors.
Private firms have always been a vital component of Australia's economy, but have historically been one of the most difficult asset classes for the average investor to gain entry to. However, unlike listed businesses, private companies do not trade on the Australian Securities Exchange (ASX), and a person's investment is negotiated privately, with legal documentation and may require them to hold the investment for a number of years.
This is starting to change. Direct investment is still predominantly the domain of the sophisticated investor, but ASX-listed private equity and managed funds have created another avenue for the retail investor to gain exposure to private companies.
Meanwhile, the private capital market has seen continued growth in Australia. The Australian Private Capital Yearbook 2025 revealed that the private capital sector has increased in significance for long-term investment portfolios, with assets under management (AUM) now valued at A$139.3 billion.
Put simply, knowing how to invest in private companies in Australia involves understanding the various investment structures, legal procedures involved and the risks that set private markets apart from listed equities.
Private markets are becoming more relevant
Private companies are not going public sooner than they have in past decades, which provides more time for institutional investors to get in on the growth of the company before it becomes public.
Private equity has been gaining more attention in recent years from resources like superannuation funds, sovereign wealth funds and pension funds, all of which have been diversifying their portfolios with the asset class.
One example is the Future Fund, Australia's sovereign wealth fund. Its Portfolio Update (31 March 2026) says that 15.1% of its portfolio is in private equity, which is one of its biggest allocations.
Private market exposure has become more readily available than it was ten years ago for retail investors, although they may not be able to replicate institutional portfolios directly, due to the increasing number of listed investment vehicles.
Two ways Australians can invest:
1. Buying shares directly in a private company
Direct investing provides a direct stake in a specific business to shareholders. This can happen when a capital raising happens, when a shareholder sells their shares or by buying shares from an existing shareholder, using convertible notes, etc.
Typically, the process will include multiple legal and commercial stages.
The typical sale consists of:
- Entering into a Non-Disclosure Agreement (NDA) prior to the disclosure of confidential financial data.
- Reading an Information Memorandum (IM) or investor presentation by the company.
- Negotiating a non-binding term sheet, outlining the proposed investment.
- Completing financial, commercial and legal due diligence.
- A Subscription Agreement (new shares) or Share Sale Agreement (existing shares).
- Enter into an agreement setting out the relationship between shareholders following the investment, called a Shareholders Agreement.
There is no standard process or public disclosure framework like in the case of listed shares.
Each transaction may be unique and vary from company to company and investment to investment.
Investing through ASX-listed private equity
If you can't access private deals, you can invest in listed investment vehicles.
The trusts buy into portfolios of private companies that are professionally managed. Investors buy into the fund via the ASX like they would listed shares, and the fund manager does the selection of the companies, due diligence and portfolio management.
Historically, private equity funds in the traditional sense, which are based in the globe, would only accept A$5 million to A$10 million commitments, which is quite beyond the means of the retail investor. Listed private equity trusts have vastly lowered that hurdle to allow the ordinary share-market investor to participate with investment amounts.
This includes a variety of investment options, including Pengana Private Equity Trust (ASX: PE1) and listed investment companies that have exposure to the private market.
Comparing the two investment routes
| Feature | Direct Private Investment | ASX-listed Private Equity |
| Investment target | One company | Portfolio of companies |
| Diversification | Low | High |
| Liquidity | Limited | ASX-traded |
| Legal complexity | High | Low |
| Professional management | No | Yes |
Important documents every investor should understand
For investors looking into investing in a private company in Australia, it's crucial to be aware of the legal paperwork involved in the process.
The most frequently used documents are:
- Non-Disclosure Agreement (NDA): Security for confidential business information.
- Information Memorandum (IM): Describes the company's financial situation, business and investment proposal.
- The term sheet is a document that outlines proposed commercial terms prior to preparing binding agreements.
- Subscription Agreement: Issued when new shares are being sold.
- Share Sale Agreement – If buying shares from an existing shareholder.
- Shareholders Agreement: Provides details about voting rights, board membership, future capital raising rights, dividend policies, dispute resolution policies and exit procedures.
Shareholders' agreement is one of the most critical legal contracts as it dictates how investors and founders will collaborate following the investment closing, says Turtons Lawyers.
The risks are different from listed shares
Private market investing can be lucrative, but investors need to weigh the pros and cons of investing in private markets before putting money at risk.
Key risks include:
- Illiquidity: Private shares are not likely to be traded on the market rapidly. Investors could have to wait until the trade sale or merger or an initial public offering before selling their investments.
- Short-term exposure to financial information: Private companies do not have a continuous disclosure requirement.
- Company valuations are based on periodic assessments and financial reporting because there is no public market price.
- Direct investment, exposure to a single business: Also, a direct investment may be exposure to just a single business.
- Private equity investments tend to be long-term, as the investment period can be quite extended until capital is returned.
When investing in a listed private equity vehicle, investors should also take into account:
- The net tangible assets (NTA) are the assets of a company after deducting its liabilities, and shares may trade at a premium or discount.
- Foreign exchange movements can impact international portfolios.
- Market prices may differ from the private company valuations.
Direct investment versus listed private equity risks
| Risk Factor | Direct Investment | Listed Vehicle |
| Liquidity | High risk | Lower risk |
| Diversification | Low | High |
| Legal documentation | Extensive | Minimal |
| Valuation transparency | Limited | Periodic reporting |
| Currency exposure | Depends on investment | Often applicable |
Due diligence should never be overlooked
Investing in a private company is a lot more investigation than buying shares of listed companies.
Investors need to evaluate:
- Historical financial performance.
- Revenue model and profitability.
- Ownership and management experience.
- Existing debt obligations.
- Competitive position within the industry.
- Compliance with regulations and laws.
- Ownership of intellectual property as appropriate.
- The rights of existing shareholders and future funding needs.
The Australian Securities and Investments Commission (ASIC) points out that investments that are outside of public markets tend to be riskier than listed investments as they are not as liquid and transparent. Every DIY investment choice should include independent legal, taxation and financial advice.
Choosing the appropriate investment approach
Both strategies allow investors to gain access to private companies, but they offer different types of investors.
Direct investment provides more control over an individual company and opportunities to negotiate the rights of shareholders, but requires also a lot of due diligence, legal paperwork and time.
Listed private equity offers investors greater diversification, professional management and avenues for access to the ASX, and as such is a more accessible way to gain exposure to the private markets without having to source deals on their own.
It is important to be aware of these differences when deciding on where to invest, especially in the context of the increasing proportion of business investment activity occurring in private markets in Australia.
Source:
Australian Investment Council – Australian Private Capital Yearbook 2025
Australian Securities Exchange (ASX) – Understanding Private Equity
Turtons Lawyers – Guide to Buying or Investing in a Private Company in Australia
AUSIEX (AXIS) – Diversifying with Alternatives: How Retail Investors Access Private Equity
Future Fund – Portfolio Update (31 March 2026)
ASIC MoneySmart – Investing and Investment Risks
Pooja Malik is a business journalist with over six years of experience covering startups, entrepreneurship, and emerging trends. She has previously worked with leading media platforms such as YourStory Media and BW BusinessWorld, where she reported on business, policy, and market developments. Currently, she serves as Editor at The Inspirepreneur Magazine, where she writes and edits stories across business, lifestyle, and travel, with a focus on clarity, accuracy, and reader relevance.
