Pre-IPO Investing 101: The Good, Bad, And The Ugly
Pre-IPO investing refers to any investment made before a company goes public through its initial public offering (IPO). Over the last decade, pre-IPO investing has become increasingly popular with venture capital firms, institutional investors, wealthy individuals, and most recently, retail investors who were there looking for a way to invest in the explosive growth of fast-moving, cutting-edge companies before they became widely available to the average investor.
The recent IPO success stories of large corporations such as Facebook, Airbnb, and Uber demonstrate the huge gains that can occur when you invest in a company early before they go public and generate interest from the general public and investors.Contradictorily the private round for companies like uber had struggled to hold that it fell immediately following their secondary market debut.
However, there are also a number of potential risks associated with investing in pre-IPO private companies that every investor should carefully consider before placing any money into.
What Is A Pre-IPO Investment?
A pre-IPO investment is simply a private investment in a private company prior to that company listing its shares on a stock exchange. Pre-IPO shares are not publicly traded and are not readily available in the public stock market.
Pre-IPO shares can be obtained through one of several methods, such as:
- Exercising employee stock options
- Investing in venture capital and private equity funds
- Accessing secondary market platforms
- Engaging in private placements or direct offerings of stock
- Entering into strategic investments
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