Illiquid — in a fund, you are locked up for years. Investing in a friend’s business means you are at the mercy of the firm and other shareholders if you want to buy more or sell some. If you think bid/ask spreads for illiquid public stocks are wide, they are narrow compared to owning shares in a private business.
The management has information advantages, whether it is the fund or the friend’s business.
The variability of results is very high, with many investments being total losses. As true of public equities, don’t invest what you can’t afford to lose.
Your friend may try to raise capital at times where you can’t or don’t want to participate.
You may not get the same amount of data to analyze as with a public company; then again, you may get the inside scoop.