Alternative investments have garnered greater attention as interest rates continue to remain at historic lows. But with investors looking to earn greater returns, alternative investments like private equity are viewed as an encouraging option to invest their money.

Alternative investments are defined against the three traditional asset type-cash, stocks and bonds-and include an array of investment opportunities: Venture capital, hedge funds, derivatives, real estate, commodities, etc. High net worth individuals and institutions usually hold these investments, as they tend to be more illiquid than stock and bonds. With that said, returns on alternative investments have a low correlation with the performance of traditional asset classes, making them a potentially desirable investment for those who want to seek financial diversification.

The shifting attitude and perception of alternative investments-especially given the precarious state of the economy-is driven by a few factors. On the one hand, alternative investments are being used for portfolio diversification to the traditional asset classes. This sort of diversification is necessary to hedge against not only market volatility but decreasing consumer confidence, high personal debt, and of course, low interest rates.

The other issue affecting investments is high inflation. Individuals and institutions have traditionally invested in bonds-especially government bonds-to keep pace with inflation. Bonds were a safe way to grow your wealth while adopting a low risk financial profile. With higher interest rates, and backing from the government, bonds were an efficient way for entities like pension funds and insurance companies to grow the money they held. However, with low interest rates and high inflation-emerging globally-most bonds aren’t delivering the returns like they once had. And with consumer and market confidence still relatively weak, investing in equity is perceived as a risky option for most people.

While these issues make people apprehensive investing in public capital markets, they have made investing in alternative investments all that more attractive. This shift is supported by a number of recent observations: Increased involvement and growth by angel investors; reluctance of tech start-ups to go public; higher number of government pension funds investing in private equity; and recent figures coming out indicating private equity firms are sitting on a $1 trillion war chest.

Alternative investments can provide superior earnings for investors while mitigating risks from playing in the public stock market. Nevertheless, high barriers are still encountered for those trying to enter this market, with most private-equity firms requiring investors to have several million before they can invest-though some firms have recently begun to lower this number to $250,000 to attract more individuals.

Faced with these barriers, P2P Financial offers an easy and accessible service for accredited investors to directly invest in private companies and special situations. With the current state of the market, P2P offers high-quality investments that are extremely difficult to find for most investors. More importantly with low interest rates, high-inflation, and continued market volatility, it’s hard to gloss over alternative investments, as they may well become an important asset class in your investment portfolio.

2011 is setting in motion the beginning of a new Internet tech boom—quite different than what was witnessed in the late-90s. Whereas the previous boom focused on hardware and search engines, this boom centers on social media and mobile devices. Whereas the previous boom occurred in the San Francisco Bay area in Silicon Valley, this one has seen new players pop-up in Manhattan in an area referred to as Silicon Alley. What is already defining this boom from the last is the lack of companies rushing to go public. In fact, companies like Facebook are acting hostile towards Wall Street, and want to retain greater control of their company and avoid some of the market volatility from going public.

For Facebook and Twitter, the need to publicly raise money, just isn’t as pertinent as it once was. With Goldman Sachs recently investing $500 million into Facebook, for instance, there isn’t a rush for a Facebook IPO. But with that said, some see Goldman Sachs’ investment as a move to get on the inside track of underwriting Facebook’s IPO in a few years. These rumors are surfacing as Facebook is encroaching upon the 500 investor mark, which requires it to register with the SEC, making company information publicly available. The logic behind these rumors is that if they have to make information public, they might as well have the company go public.

For these tech companies, remaining private allows their founders to instill and hold on to the values and ideas that made their companies originally take-off. And with investors looking feverishly for great ideas and companies to park their money—given lingering post-recession volatility—what is going to motivate Facebook and Mark Zuckerberg to give up control and take on greater market instability?

Tapping into venture capitalists and angel investors, rather than raising money by going public, seems to signal a trend by start-ups in the post-recession economy. But even if other companies like Twitter, Foursquare, and Groupon flirt with the idea of going public, if Google’s path reflects anything, the general resolve seems to be wait an extended period of time—as what was witnessed with Google who went public very late in the game. And for Google, as seen with Facebook, this wait created a backlog of investors looking to own a stake in their company.

With this surge in private equity investing, as people become more cautious of the stock market, sites like P2P Financial are becoming essential, helping accredited investors invest privately in budding companies and entrepreneurs. As most individuals don’t have the luxury or capital to have their money managed by investment companies—aggressively pursuing the latest and hottest company and trend—connecting with privately held companies through P2P is more and more appearing to be an essential avenue to look to invest.

For those interested in investing in the next wave of Internet companies, privately investing and reaching out to them could be one of the most effective ways to be part of this market. And as such, P2P is a great avenue in which to enter this sector early in a business’ lifecycle.

With the advent of Facebook and Twitter, social media has become a permanent aspect for most of us in our daily lives. Recently, Facebook surpassed the 500 million member mark, with the company now valued at $50 billion and earning $1 billion annually in revenue. Though smaller, Twitter, with 200 million users, is valued at $1 billion and with revenue of $150 million. Given these figures, it is of little surprise that so many angel investors are seeking to find the next great social media start-up. But before you look at privately investing in this ballooning sector, there are things you should understand about their business model and differentiating features.

The distinguishing feature of social media that differentiates it from the dot.com Internet boom of the late 1990s is the way people interact and connect with each other online. Whereas people previously made money off the Internet through the ability to search for people, companies, and sell things, social media or what some call “Web 2.0,” allows Internet users to create and publish anything they want to share about themselves. While this in itself provides zero revenue, the advertising model that it is premised on has become a lucrative business. Google for example, made $6.77 billion in the first quarter of 2010, which is made almost exclusively off its search engine capabilities that power its advertising model (because in the end, Google is just a very large advertising company).

More recently however, smartphones, have served as a platform for the selling of “apps.” Apps are third-party software programs that perform a variety of different functions (ie. suggest restaurants, turn on your car, allow you to purchase items, play games). Given the distribution system of cellphones, apps have become a relatively inexpensive product with a huge and accessible market reach.

Thus, for some, the revenue from social media is the software program itself. For others, it is the advertising revenue generated by connecting and tracking others. More recently, the emergence of ”geolocation” on cellphones has allowed us to pinpoint the specific location of users of specific apps. This in turn has resulted in highly specified targeted advertisements. These affordable advertisements have allowed both individuals and small companies and large companies to adequately target their customer base.

In general, privately investing in a social media company can mean a few different things depending on the source of revenue. With competing apps available for download, investing in what you see as a successful company has become a harder decision. While due diligence is needed when picking said company, the other thing to remember is that most companies are not going to turn out to be the next Facebook or Google. However, because of the market reach of the Internet and ability to deliver targeted advertisements, finding a good small-to-mid cap company can be an excellent pay-off. In the end, the hardest part of investing in social media is not the business model itself, but finding a company you believe in, with the pay-offs you expect from your investment.

Before approaching any investors, go over these pointers to ensure that you make as many right moves as possible in securing your financing:

1. You should create a business plan that emphasizes your particular competitive advantage and how it is sustainable.

2. Be flexible with your deal terms to try to maximize both your interest as well as your investor’s.  Rather than trying to get a bigger piece of the same pie, try to make the whole pie bigger for both parties.

3. Emphasize your industry experience to potential investors. This will alleviate many of their concerns and build a comfort and understanding of your leadership capabilities.

4. Be patient when raising money.  Typically it takes anywhere from three to  nine months for a successful raise.

5. Make sure you approach investors who have an investment criteria which matches with your business.

6. A good idea is not enough.  You need to prove that your idea can become a viable and profitable business.

7. You should identify and contact investors who have a geographic proximity to you.  Rightly or wrongly, investors like to be close to businesses they are investing in.

8. Often in order to raise money, you need to first spend considerable time and money.  It may be ironic to have to spend money to get money but it will position you far better in front of investors to have a professional and well thought out presentation.

9. Find investors who can bring more than just money to the table.  Find investors who you can leverage off of their experience and guidance.

10. Find long-term investors.  Investors who share your vision but who are also patient in their time period will provide you with the latitude to build out your idea prudently and not be forced into making hasty decisions just to fill an unrealistic deadline.

Picking your next angel investment is one that will no doubt consume large amounts of an investor’s time. Having a clear guideline or decision framework is both valuable in saving you time but also in increasing your overall rate of return. There used to be an old adage that you shouldn’t invest in a business that is more than 100 miles away so that you can always keep an eye on your investment. While this was certainly true over the past 50 years, it is more and more becoming an outdated and hazardous train of thought. Continue reading »

Finally found that entrepreneur that you want to invest in?  He or she has exactly what it takes to make the venture succeed?  You want to take part of it so both of you will prosper?  But now you’re not sure about how to get the deal terms to where you want them?  Here are three key tips from the experts that are worth a quick review:

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It’s a great question and an absolute must for any growing business to consider.  The benefits of offering Debt or Loans to potential investors is that you of course retain all of the equity and a claim to all of the business’ profits.  You also get to retain total control and do not have to worry about other shareholders causing problems legally or otherwise for you.

But we would take the other side of this debate, we would recommend you take on equity investors far before you take on creditors for two key reasons.  First off, with an equity offering, you do not have any interest payments or looming debt.  We can tell you that most people (including entrepreneurs) do not think as rationally and clearly as they do when they have borrowed money to make money.  People tend to make decisions more in haste and tend to hit the panic and euphoric buttons much too quickly;  Not exactly the environment for shrewd business decisions.

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Although there has been much debate on this topic, there is certainly a good argument to be made that suggests these segments are being avoided or at least treated unfairly by our Canadian suppliers of capital (i.e. Banks, Trust Companies, etc…).  Referring to the 2007 Survey on Financing Small and Medium Enterprises done by Statistics Canada, this Financing Gap argument is easily seen in the following segments:

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