Using a Self-directed IRA to Invest in Startups and Early-Stage Companies: Become an angel investor or private equity investor with funds from a tax-advantaged retirement account

Published on July 1, 2025

Entrepreneurs who are starting up a business often have tremendous vision but may be short on start-up or growth funding for their private enterprises. That’s where private equity (PE) investing comes in.

What is private equity investing?
Private equity is an alternative asset allowed in a self-directed IRA (SDIRA). There are two categories of private equity investors:

• An angel investor is an individual who gets involved financially in the true startup, pre-revenue stage, providing seed money, usually for future equity in the business—if the company is successful. Angel investors look for companies with high growth potential, often in emerging industries or those that could be market disruptors. Their investment goal is to support the company’s growth. The investor’s IRA makes money when the company goes public, is acquired, or is sold (at a profit).
• Private equity investors and PE firms invest in companies that span from early-stage to more mature after the business has become established and has some cash flow. They are investing to help the company improve performance, make strategic changes, enter new markets, and more. The PE investor’s IRA makes money when the ownership stake is sold at a higher valuation than the initial investment.

Types of startups that seek angel and private equity investment

Companies that seek and attract PE investments are often in the technology realm, encompassing various sectors and types—cloud computing, AI, social media, technology in the financial, educational, real estate and healthcare sectors, energy, e-commerce, biotechnology, and cybersecurity. Examples of companies that are now household names but got their start with angel investments include Zoom, Stripe, Robinhood, Coursera, Open Door, and Rivian (electric vehicles).

The companies receiving the investment are privately held and are not listed on a public exchange.

Ways to make private equity investments

Note that some offerings for private equity funding may be restricted to accredited investors. However, in addition to straight equity (a direct ownership investment in which the IRA becomes a shareholder) there are various vehicles an account owner can use to make private equity investments using a SDIRA:

• Limited liability company
• Limited partnership – an investment in a private equity fund
• Real estate syndication, which we explain in this article
• Debenture – essentially a loan, this is a long-term, unsecured debt instrument issued by a company to raise capital
• Convertible notes – a debt instrument in which the investor’s investment plus any accrued interest is converted into shares of company stock
• Private hedge fund
• Private equity crowdfunding – online platforms that connect investors with private companies or investment funds seeking capital (enabling both accredited and non-accredited investors to participate)

Private equity funding through a self-directed IRA

As with most alternative assets, PE investment is more long term and illiquid but carries potential for strong returns—and the investment grows in a tax-advantaged retirement account. These investments diversify retirement portfolios and enable investors to align investments held in their SDIRA with personal values or interests (supporting local startups, innovative products, or companies with social justice missions, for example).

Like all self-directed investments, account owners are strongly encouraged to conduct their due diligence and understand the risks and potential benefits of the investment before sending investment instructions to the SDIRA account administrator. This may entail researching the startup business, its market potential, business plan, revenue model and financial statements and projections; legal documents; and in the case of investing in a fund or syndication, researching that entity as well.

Remember that the self-directed IRA is the investor, so the investment is made in the name of your SDIRA to comply with IRS regulations. Investors are also advised to avoid making a prohibited transaction by investing in a startup in which you personally (or certain family members) have significant ownership or control interest. Any income or fees related to the asset flow through the SDIRA.

Work with a trusted administrator and custodian

At Next Generation Trust Company, our clients invest in a broad array of alternative assets, including private equity funding. We serve our clients as both the administrator of self-directed retirement plans and custodian for the assets held within their accounts. We also provide client education about various aspects of self-directed IRAs and the many nontraditional investments they allow. You can sign up for an event, watch our webinars, download our white papers, or contact our helpful team with your questions at NewAccounts@NextGenerationTrust.com or 888.857.8058