More investors are turning to private markets, excited about the opportunities they offer. But as more investors show interest in these opportunities, so do more firms and individuals looking to raise capital from them — and not all operate with the same level of transparency.1
Unlike public markets, where many disclosures and oversight are baked into the process, private offerings can vary widely in how they’re presented and by whom.2 That makes it even more important to ask questions.
Here’s a simple list you can keep on hand. Whether you're replying to a pitch in your inbox or talking with someone on the phone, these are some questions you can ask:
- Are you registered as a broker-dealer?
If someone is acting as an intermediary for securities, they generally need to be registered as a broker-dealer with FINRA and the SEC. You can check their credentials on FINRA’s BrokerCheck by asking for their CRD number.
If they aren’t registered, you deserve a clear answer as to why. Some platforms may rely on exemptions or act only as technology providers — and that might be fine — but you should always know where the regulatory responsibility lies.
- Are you subject to any third-party audits or compliance standards?
You’re sharing sensitive information and wiring money, so the platform’s security and controls should matter. SOC 2 compliance is one of the key benchmarks here. It means an independent auditor has reviewed their systems for data protection, availability, and privacy.
If a platform or broker isn’t subject to outside scrutiny — financial or technical — you’re taking them at their word. That might not be secure enough for you to feel comfortable writing a five- or six-figure check to a sponsor featured on the platform.
- How much capital have you helped raise to date?
Volume isn’t everything, but it does tell you whether this platform or team has experience handling investor capital. A broker or platform that’s helped raise hundreds of millions (or billions) is generally more likely to have sufficient infrastructure, processes, and relationships in place.
It also may suggest they’ve seen a range of deal types and strategies, and that matters when vetting future opportunities. If they won’t tell you how much they’ve raised, and from whom, it may be a red flag.
- Who decides which deals get listed?
If the person or company reaching out to you presents themself as a marketplace for certain offerings, whereby they are not the actual operator, this is a great question to ask.
Some platforms list any deal a sponsor wants to post, as if they’re some sort of Craigslist or Facebook Marketplace for investment opportunities. Others have an investment committee that applies a consistent screening framework. Some conduct background checks; others don’t.
Most investors want to know how much vetting is done before a deal lands in their inbox. If the answer is “we list everything,” that’s fine — but it means you may have to do your own additional research.
- What information do you provide after I invest?
This is another great question to ask if the person or company reaching out to you presents themself as a marketplace for certain offerings, whereby they are not the actual operator.
Some platforms stop communicating once the capital is raised. Others offer regular reporting, performance tracking, tax documents, and sponsor updates. Most investors want at least some visibility into how things are going.
Before considering investing, ask what kind of visibility you’ll have after the wire goes out. Will you get quarterly updates? Audited financials? What kinds of tax forms will you receive?? Clarity on this upfront saves you from chasing down answers later.
- Who holds your money and how is it protected?
In private investing, your funds don’t always go straight to the sponsor. Some platforms and sponsors use escrow accounts. Others route money through intermediaries. You want to know: Who’s holding your capital before the investment closes? Are they licensed? Insured? Bonded?
Misrouted or mishandled funds can create headaches — or worse. Platforms should be able to explain clearly how the flow of funds works, who controls the account, and what protections are in place for investors.
These are the kinds of questions every investor should feel comfortable asking before committing capital. Use them, copy them, forward them. To the extent that you can, for any of the questions, ask for proof. And if someone makes you feel like you’re asking too much, that’s a red flag. You’re just doing your homework.
At Crowd Street, we’ve made our answers to these questions public. If your broker or platform hasn’t, it’s worth asking why.
1 https://www.sec.gov/newsroom/speeches-statements/gensler-2021-05-26
