Welcome to our short video about pre-IPO investments!
Pre-IPO investments involve investing in pre-IPO companies, late-stage, venture capital-backed private companies on the verge of going public via a liquidity event, typically an IPO. These companies offer a great risk/reward proposition. As stable and growing companies, pre-IPO companies are a safer investment than early-stage companies at lower, pre-IPO share pricing. And since pre-IPO shares are purchased before the company goes public, there’s room for outperformance and significant returns for the investor. While in the past pre-IPOs usually interested institutional investors, nowadays they’ve become more accessible to individual accredited investors.
Here’s how it all works.
Pre-IPO shares are typically acquired from existing shareholders, such as early company employees and executives and early investors, in the secondary private market. As an investor, you may be wondering why a shareholder would sell if the company is such a good investment opportunity. Employees and executives may sell for liquidity purposes, while early investors typically already have experienced significant returns on that particular investment and may be looking to free up liquidity for their next early-stage investment.
If you purchase shares at the pre-IPO stage, keep in mind that they won’t be available to you right away. When you purchase pre-IPO shares on the secondary market, you have to wait for the company to undergo a liquidity event, which is usually an IPO. After the IPO, there is usually an early investor lockup period, which typically lasts 180 days from the IPO announcement date. During this period, pre-IPO investors cannot sell their shares. Once this period expires, you are free to sell or continue to hold onto your shares.
Want to learn more about pre-IPO investments? Click the link at the bottom of the page to find out the 5 Things Every Investor Should Know Before Investing in Pre-IPO’s.