9 January 2023
Prior to the dot-com crash in the late 90s, private companies generated a lot of cash from IPOs. However, in recent years, more and more private companies have been successful in getting adequate funding, making their valuations peak before going public.
This is highlighted by the substantial rise in the number of unicorns today, private companies with a valuation of over one billion dollars.
Pre-IPO (initial public offering) companies are companies that haven’t yet registered their IPOs to sell a portion of the company in the form of shares on the stock market.
Pre IPO companies appeal to investors for various reasons, with ROI being at the top, albeit benefits are specific to each investor’s interests.
One of the ways to find Pre-IPO shares is to purchase the stock directly from the entity. But there is a catch, to do this, you need to be a wealthy person. To find and purchase Pre-IPO shares directly from companies conducting IPOs soon:
One of the best ways to find and buy shares directly from Pre-IPO companies is by attending startup pitch forums to find promising companies to invest in. Such forums can also help you network with industry insiders.
Numerous crowdfunding platforms like AngelList and FundersClub allow you to invest in companies before they go public.
You can reach out to these financial institutions to see if they know any private companies looking to list on the stock exchange. They can also provide financial advice as well since they have in-house financial advisors.
Financial news segments can also provide insight regarding Pre-IPO companies and even tell you when these companies are likely to go public.
You can also find and purchase Pre-IPO stock options indirectly. Finding and buying shares directly from Pre-IPO companies can prove difficult if you’re not a wealthy. If you’re not a wealthy, you can find and purchase Pre-IPO stocks from other entities like:
ETFs such as The Invesco Global Listed Private Equity Portfolio get money from numerous investors and use them to invest in private companies.
Venture capital groups like the Vanguard Group trade on the floor of stock exchanges. These public VCs are an avenue for you to find and purchase stock in private companies.
Brokers are players in Pre-IPOs. Some of these brokers may have stock they’re willing to sell or know people looking to dispose of some stocks. Some of the top specialized brokers include:
EquityZen
This specialized broker has Pre-IPO stocks of select firms. EquityZen also offers Pre-IPO funds that help stockholders to diversify their portfolios by investing in several Pre-IPO companies.
EquityZen has previously listed Pre-IPO stocks in companies like Rivian and RobinHood. The minimum investment is $10,000, but some sales can be higher.
Forge Global
This specialized broker recently merged with SharesPost to create a powerhouse in the Pre-IPO sector. Forge Global links people looking to purchase Pre-IPO stocks with sellers. The minimum investment is $100,000, but some sales can be higher.
NPM (Nasdaq Private Market)
NPM has a network of qualified buyers that invest in Pre-IPO companies via flexible auctions. To use NPM, you must meet the SEC’s revised accredited investor qualifications.
Yes, joining a Pre-IPO company is good because it offers many benefits that we’ll discuss in the next segment. But before you join a Pre-IPO company, you should:
Investing in Pre-IPO companies isn’t a get-rich-quick scheme. It can take a company a couple of months or years to conduct its IPO. Even when the firm eventually conducts its IPO, the share IPO price might rise slowly, so you should be patient.
Prior to joining an IPO company, it’s important to do research and learn as much as you can about the company. Is there demand for the products and/or services the company offers?
Is the expected growth rate accurate and achievable? These are some of the questions you need answers to before investing in a Pre-IPO company.
Private companies that intend to conduct IPOs provide their investors with a PPM (private placement memorandum). What is a PPM?
A PPM is a document that comprises all the information an investor needs to help them decide whether or not a company is worth investing in.
When investing in Pre-IPO companies, only invest heavily, primarily if it’s your first time. It’s advisable to start small and gradually grow your investment.
You should understand the risks that result from investing in Pre-IPO companies. For starters, not all of them succeed. Secondly, some don’t go public at all. Therefore, you can lose money instead of profiting from your investment.
One of the main benefits of investing in Pre-IPO companies is the opportunity to build long-term wealth. Most of the time, Pre-IPO companies are on an upward trajectory unless something big happens that halts the company’s progress.
If the company is successful, not only will you generate massive returns, you have an opportunity to build long-term wealth because you can use these returns and your experience to make investments in future Pre-IPO companies.
When you invest in a Pre-IPO company, you’re exposed to less risk because most companies don’t have an income stream and are yet to make a profit. Basically, the risk is less when investors don’t have a public stock offering where they can dump their shares.
This means when you invest in a private company, your ROI will likely be higher than when you wait for the company to be listed on a stock exchange.
It’s worth noting that there is still some risk linked to private companies because newer companies can overshadow them or the business model fails to take off.
One of the best things about venturing into Pre-IPO companies is the potential for massive returns. Since you’re investing in the company before it’s listed on a stock exchange, you can generate huge profits when the firm ultimately conducts its IPO. Not only that, but it also means that investing in Pre-IPO companies gives you value for your money.
For instance, cab-hailing application, Uber had a valuation of more than 60 billion dollars prior to conducting its IPO. This means if you invested $1,000 in the company Pre-IPO, your shares would be worth seven million dollars, give or take when the company is listed.
Pre-IPO companies typically have a lower valuation than when they list, but they’ve proven they can generate liquidity. This is crucial because it proves that this business model works.
When a company goes public, its overall value skyrockets, discouraging most people from investing. Fortunately, this isn’t an issue with Pre-IPO companies allowing investors to buy into solid businesses at a fraction of the price of listed companies.
Therefore, when you invest in Pre-IPO companies, you can enjoy such benefits without waiting for the company to go public. What’s more, Pre-IPO companies and their subsequent investors are subject to fewer regulations compared to listed companies.
As an investor dedicating your time and money to Pre-IPO companies allows you to spot valuable trends ahead of everyone else and make investment opportunities that will be valuable in the future before others realize their potential.
Investing in Pre-IPO companies also gives you more control over your investments and the power to decide whether a company will succeed or fail.
There is a lot of confusion between investing in Pre-IPO companies versus investing in regular stocks. That said, let’s define them to see the difference between them.
A Pre-IPO only happens in a private entity, not a public one. Pre-IPO is when a startup company is looking to raise capital before it goes public. It’s worth noting that there is no guarantee that a Pre-IPO company will ever go public.
Regular stock, also known as common stock, is a security that represents ownership in a public company. Holders of regular stock elect the company’s board of directors. This type of equity ownership generates higher returns in the long run.
However, if the company is to be liquidated, holders of regular stock can only be reimbursed after bondholders, debtholders, and preferred shareholders are paid in full.
As mentioned above, a Pre-IPO company is a company that intends to go public but has yet to reach that stage. Pre-IPO companies are not subject to SEC (Securities and Exchange Commission) guidelines, which is both an advantage and disadvantage.
There are restrictions when an investor ventures into Pre-IPO companies. For starters, they can’t sell their shares instantly as they would if they invested in a public company.
A publicly traded company, also known as a public company, is a company whose shareholders have a claim to its assets and profits. Public company shares are distributed among public shareholders through free trading shares on stock exchanges or OTC public markets.
ARM is a semiconductor company with a worldwide reach, as its products are used by roughly three-quarters of the world. Company executives have termed its IPO progress as ‘advanced.’ This means it’s one of the most promising Pre-IPO companies to watch in 2023.
As the name suggests, Better Mortgage is a real-estate mortgage company with low interest rates, albeit most of its operations are online. The company raised $750 million in 2021, pushing its valuation to $7 billion. The company is likely to go public in 2023.
Chime is a mobile-banking service company headquartered in San Francisco. The company was set to conduct its IPO in early 2022 with a reported valuation of about 40 billion dollars.
However, the company decided not to proceed with its IPO last year because fintech companies were experiencing massive losses. Fortunately, the IPO community expects Chime Financial Inc. to go public in 2023, so investors should be on the lookout.
Databricks Inc. was launched in 2013, and it’s a big data and cloud computing company. Databrick’s mission is to make cloud computing efficient, effective, and optimizable for its over 5,000 client companies around the world.
With earnings of over one billion dollars and a rising year-on-year growth rate, Databricks is a good candidate for companies that could go public in 2023. It’s worth noting that, unlike other companies in this list, a specific date for its IPO has yet to be set.
Discord is an instant-messaging company based in San Francisco. The company has about 14 million active servers, 300 million registered, and 140 million active users. Its IPO should have been in 2022, but it’s been pushed back to 2023.
Epic Games is an online video game company based in Cary, North Carolina. This company is best known for its online multiplayer battle royale game, Fortnite. This game ranks in the top 10 most popular online games worldwide, with over 300 million registered users.
Investors can now own a portion of Epic Games via Ark Venture Fund at Titan, which is a good investment for when the 32 billion-dollar company ultimately goes public.
ezCater is a Boston-based e-commerce giant that links businesses to caterers and restaurants. The company had its late-stage funding in 2021, which saw it raise $100 million, pushing its valuation to over $1.5 billion. ezCater is expected to go public in 2023.
Fanatics is an online sports apparel manufacturer and retailer. The company had a round of funding in late 2022, raising $700 million, pushing its valuation to $31 billion. Heavy external ownership could push the company to conduct its IPO in 2023.
Flexport is a supply chain and logistics company based in San Francisco. In early 2022, the company raised $935 million, pushing its valuation to $8 billion.
It’s worth noting that Flexport still needs to file for an IPO or clarify its intentions about having one. However, when the company does, it will be one of the hottest upcoming IPOs.
Houzz is a home design, decorating, and remodeling company that inspires people and connects them to pros to bring their home design and remodeling ideas to life.
In 2021, the company hired Goldman Sachs to underwrite its IPO efforts. However, the company failed to conduct its IPO in 2021, making it likely that it will happen in 2023 or 2024.
Impossible Foods is a plant-based meat company based in Redwood City, California. The company’s popularity has dropped as the novelty of plant-based burgers wears off. But it still has a valuation of over $10 billion and might go public in 2023.
Instacart is a grocery delivery and pick-up company based in San Francisco. It’s last funding in 2021 valued the company at roughly $40 billion.
Instacart postponed its 2022 IPO, and although no reasons were given, industry analysts think it was because of the shaky stock market. 2023 might be the year Instacart goes public.
Launched in 2011, Intercom designs and develops technologies to boost customer engagement in marketing, sales, and after-sales support. Intercom has more than 20,000 clients and delivers over half a billion messages monthly.
Compared to most other tech companies, Intercom has yet to raise massive amounts of VC funding. But the company still has a valuation of over $1 billion and might go public soon.
Patreon is an online platform where content creators can earn when people subscribe to their channels. Patreon last raised cash in April 2021, pushing its valuation to $4 billion. Patreon will likely conduct its IPO in 2023 or 2024.
Over 75% of US residents bank digitally, which is precisely what Plaid Inc. does. A user can open a bank account online with Plaid and keep cash, cryptocurrency, etc. The company was to go public in 2022, but the fintech winter halted this move.
If inflation reduces and investors become confident in the IPO market once again, Plaid Inc., which has a valuation of about $12 billion, could ultimately go public in 2023.
Reddit is one of the most renowned social media platforms, with 1.2 billion registered users and over 400 million active monthly users.
With such robust backing in mind, the company, with a valuation of between $10 billion and $15 billion, is set to conduct its IPO in mid-2023.
Rubrik is a global management and security company headquartered in Palo Alto, California. Rubrik is one of the few cloud companies looking to go public in 2023.
ServiceTitan is an online platform that helps home service providers like electricians and plumbers streamline operations. Some of the services the company offers include ads, dispatch, job costing, payroll, scheduling, etc.
In 2021, ServiceTitan raised half a billion dollars pushing its valuation to $7.5 billion. The company is likely to conduct its IPO in 2023.
Stripe is a payment processing company headquartered in the city of San Francisco. In its last round of funding in the first quarter of 2021, Stripe raised $600 million, which boosted its valuation to a whopping $95 billion.
Stripe also cut its labor force by 14% in 2022, a move designed to show Wall Street, New York investors that the company is a viable long-term investment.
TripActions is a cloud computing startup that raised $400 million in its last funding round in 2022. This massive investment, mainly from Goldman Sachs, valued the company at $12 billion. The company has filed for an IPO in the spring of 2023.
Cybersecurity is the main priority of CIOs in the United States which is good news for cybersecurity companies like Versa Networks.
Launched about ten years ago, Versa Networks is a market leader in the SASE (secure-access-service-edge), which is on the rise. In late 2022, the company raised $120 million, pushing its valuation to about $1 billion. The company is expected to go public in 2023.
In conclusion, investing in IPOs is standard practice around the globe. Unfortunately, Pre IPO investing is less popular because of the bureaucracies involved and the lack of information. If you have access to Pre IPO companies, you should invest in them.
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