PRE-IPO INVESTING

WHAT IS PRE-IPO OFFERING?.

PRE-IPO INVESTING

What’s a pre-IPO then? Well, In general, a pre-IPO offering is an offering of a PRIVATE company’s shares that happens before company goes public (before the IPO). However, early-stage funding rounds are never called pre-IPOs, obviously. So, let’s agree, that pre-IPO is an offering of shares in a company, that expects to have an IPO in the near future and is officially getting prepared for it. Pre-IPOs investing became hotter in recent years. There are a few reasons for that.

Good companies tend to stay private for longer than before.

As a consequence of the above — more value is now created by companies while being private, than ever before. Back in the early 2000s, a private company, evaluated at $1bn or higher (a “unicorn”?) was a unique find, in 2015 we had 74 unicorns globally, while today there are 452 unicorn companies, cumulatively evaluated at $1,33bn.

The earlier you invest — the more money you’re going to earn (in case you have chosen the right company, of course) Typically, the earlier you invest, the more the chance to get a high return — if invested in a good company. Angel investors and VCs invest very early to get 100x or even 1000x returns. For example, the earliest (seed) Airbnb investors bought their shares for only $0.02 — which means the 10,000x+ return (considering share price goes $200+ after the public placement).

PRE-IPO INVESTING CONT.

Pre-IPO investment is the investment at the period of time when it’s pretty clear that the company is going to go public shortly. Typically, by this time the company already has:

01

SUSTAINABLE
a sustainable cash flow, and, usually, profits

03

PRODUCT
a working product with lots of customers (for B2C companies at least)

02

MODEL
a proven business model

04

STRATEGY
a potent growth strategy to convince future investors to purchase the equity

PRE-IPO INVESTING CONT.

Pre-IPO investment is the investment at the period of time when it’s pretty clear that the company is going to go public shortly. Typically, by this time the company already has:

01

SUSTAINABLE
a sustainable cash flow, and, usually, profits

02

MODEL
a proven business model

03

PRODUCT
a working product with lots of customers (for B2C companies at least)

04

STRATEGY
a potent growth strategy to convince future investors to purchase the equity

Companies also thrive to maximize performance, optimize costs, and increase media presence during the IPO preparation.

So, at this point, we have a public-ready company that is going to put all its marketing and management efforts to get its valuation before the IPO date, and before this date, you can get an exposure in this company at a deep discount to the IPO price. Sounds good, right? But there is never an additional return without some additional risk in this world — that’s how market efficiency works.