How to Buy Pre-IPO Stock
Invest in private companies and early-stage startups before they go public. Learn how to buy pre-IPO stock and seize early investment opportunities.
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Pre-IPO investments let you invest in companies before they go public. These stocks can grow as rapidly as the company does.
However, they're also risky. This is because there's no guarantee that the company will go public. Even if it does, its price also isn't guaranteed to rise.
If you're an accredited investor that's willing to take the risk, there are a few ways for you buy pre IPO-stocks.
Invest in High-Growth Startups
Equitybee gives accredited investors access to high-growth, VC-backed startups. By funding employee stock options, accredited investors can gain investment exposure to private companies at past valuations. In exchange for funding the options, you will receive a percentage of future proceeds from any successful liquidity events. Subject to availability. Investments involve risk; Equitybee Securities, member FINRA
Invest in Private Companies
- Invest in pre-IPO companies through an EquityZen fund.
- $10,000 minimum investment
- Available to accredited investors only
What Are Pre-IPO Stocks?
Pre-IPO stocks are shares of companies that have not yet gone public. This means they aren't listed on any stock exchange and aren't publicly accessible for individuals to buy or sell.
These stocks are usually traded privately among accredited investors, venture capital firms, and angel investors. Let's take a closer look.
To subscribe to pre-IPO, you need to be an accredited investor and find a pre-IPO company that offers shares. Accredited investors can subscribe through secondary marketplaces, brokers, or crowdfunding platforms.
Non-accredited investors may invest through a special purpose vehicle (SPV). SPVs are often used by private equity firms and venture capital firms to invest in pre-IPO companies.
How Do I Buy Shares of Pre-IPO Stock?
Looking to get in on the ground floor of an up and coming company? There may be a few ways to buy shares of their pre-IPO stock.
Use a Broker or Secondary Marketplace
Secondary platforms allow accredited investors to buy and sell pre-IPO stocks. These platforms typically have a large selection of pre-IPO companies like Equitybee.
To buy pre-IPO shares in secondary platforms, you must be an accredited investor. Accredited investors are individuals who meet certain income or net worth requirements.[1] Once you have become an accredited investor, you will be able to open an account with a secondary marketplace.
It's important to note that not all brokers offer this service. Some may also have minimum investment requirements. For example, Equitybee requires a minimum investment of $10,000.
Some of the best brokers for pre-IPO stocks include, Equitybee, Forge Global, EquityZen, and Nasdaq Private Market.
Equitybee | EquityZen | |
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| Minimum Investment | $10,000 Direct Share Acquisition: at least $150,000 | |
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| Visit Site | Visit Site | |
Equitybee: Subject to availability. Investments involve risk; Equitybee Securities, member FINRA | ||
U.S. Securities and Exchange Commission (SEC) Financial Criteria include:[2]
- Net worth over $1 million, excluding primary residence (individually or with spouse or partner)
- Income over $200,000 (individually) or $300,000 (with spouse or partner) in each of the prior two years, and reasonably expects the same for the current year
Buy Pre-IPO Stock Directly From the Company
In some cases, it's possible to buy pre-IPO stock directly from the company itself. This is only possible for accredited investors.
Additionally, there are two other ways you can directly acquire shares of a company:
- Crowdfunding platforms
Crowdfunding platforms let accredited investors pool their money and invest in pre-IPO companies. These can either be led by the company or the crowdfunding platform.In company-led campaigns, the company sets a goal and creates the campaign on the crowdfunding platform. You then pledge to invest a certain amount of money in the company.
If the goal set by the company is reached, all the investments are processed and the company receives the money. However, if the company fails to reach the goal, the investments are returned to the investors.In a platform-led portfolio, the crowdfunding platform curates a selection of pre-IPO investment opportunities and offers them to accredited investors. From there, you can choose to invest in individual companies within the portfolio or invest in the portfolio as a whole.
- Become an angel investor
Angel investors are those who use their own personal funds to invest in startup businesses. They provide initial funding (seed money) in exchange for shares in the company. That means that if the startup succeeds, the angel investor will also profit.Anyone with the money and a willingness to fund startups can be an angel investor. They're a lifeline for entrepreneurs who can't get conventional bank loans.
Note that angel investors are not giving loans. They take a risk by investing in a startup. If you plan on becoming an angel investor, be sure to invest in businesses you believe have a strong chance of success.
While it isn't mandatory, becoming an accredited investor is highly recommended for those who plan to be an angel investor. Accredited investors are better equipped and protected against potential losses due to the high-risk nature of the investment.
Buy Pre-IPO Stock Indirectly
If you don't meet the requirements to invest directly in pre-IPO companies, there are a few ways to indirectly buy pre-IPO stock:
- Publicly-held venture capital (VC) firms
A VC firm is a professional investment company that provides funding to early-stage, high-growth potential startups. They typically raise money from institutional investors, such as pension funds, endowments, and wealthy
individuals. They then invest the money in a portfolio of startups with the goal of generating high returns.Some VC firms are publicly traded, meaning you can buy shares of the firm on the stock market. This is the most common way to invest in pre-IPO stock indirectly.
You can buy publicly traded stocks of VC firms using many brokerages or trading apps. All you need to do is create an account with the brokerage of your choice, fund your account, search for the company's ticker symbol, and place an order.Some examples of publicly traded VC firms include Khosla Ventures Acquisition Co. (NASDAQ: KVSA) and Sutter Rock Capital Corp. (Nasdaq:SSSS).
- Private equity funds
Private equity funds are investment vehicles that pool money from investors to invest in private companies. Some private equity funds even specialize in investing in VC firms.Note that to invest in a private equity fund, you'll typically need to be an accredited investor.
Some examples of private equity firms that raise capital through private equity funds include The Blackstone Group Inc. (NYSE: BX), KKR & Co. Inc. (NYSE: KKR), Apollo Global Management (NYSE: APO), and Oaktree Capital (NYSE: OAK). - Private equity exchange-traded-funds (ETFs)
A private equity ETF is a type of investment that enables you to participate in a portfolio of private equity investments. This means that you can indirectly invest in companies that aren't publicly traded on a stock exchange.Private equity ETFs are more liquid because, like regular stocks, you can easily buy or sell them on a stock exchange. This makes transactions convenient based on your investment preferences.
You can easily buy ETFs on many brokerages or trading apps without special qualifications. Just create an account, fund it, search for private equity ETFs (e.g. ProShares Global Listed Private Equity ETF: 'PEX'), and follow platform instructions to place an order.
Why Invest in Pre-IPO Stocks?
There are a few reasons why investors might want to invest in pre-IPO stocks:
- Diversification benefits
Investing in pre-IPO companies can help you diversify your investment portfolio. By including early-stage ventures, you may tap into emerging sectors and boost potential returns. - Potential for Influence
As a pre-IPO investor, you may have the opportunity to influence the company's direction and growth. This can be a rewarding experience and can also lead to additional returns if the company is successful. - Lower investment minimums
Pre-IPO investments often have lower investment minimums than traditional venture capital investments. This can make them more accessible to a wider range of investors.
Can Anyone Buy Pre-IPO Stock?
Only accredited investors can invest in pre-IPO stocks in the United States. Here are the requirements to qualify as an accredited investor according to the SEC: [3]
Financial criteria:
- Net worth over $1 million, excluding primary residence (individually or with spouse or partner)
- Income over $200,000 (individually) or $300,000 (with spouse or partner) in each of the prior two years, and reasonably expects the same for the current year
Professional criteria:
- Investment professionals in good standing holding the general securities representative license (Series 7), the investment adviser representative license (Series 65), or the private securities offerings representative license (Series 82)
- Directors, executive officers, or general partners (GP) of the company selling the securities (or of a GP of that company)
- Any "family client" of a "family office" that qualifies as an accredited investor
- For investments in a private fund, "knowledgeable employees" of the fund
Risks of Investing in Pre-IPO Stocks
Investing in pre-IPO stocks is riskier than investing in publicly traded stocks.
Pre-IPO stocks are often more volatile and illiquid than publicly traded stocks. This means they can be more difficult to sell and may experience larger price swings.
Additionally, there is a risk that the company may never go public. If the company does not go public, investors may have difficulty selling their shares and may lose their investment.
Tips for Investing in Pre-IPO Stocks
If you are considering investing in pre-IPO stocks, here are a few tips:
- Do your research
Before investing in any pre-IPO stock, it's important to do your research on the company and the industry in which it operates. This will help you assess the company's risks and potential rewards. - Invest only what you can afford to lose
Pre-IPO stocks are risky investments, so you should only invest what you can afford to lose. - Diversify your portfolio
It's important to diversify your investment portfolio by investing in a variety of different asset classes, including pre-IPO stocks, publicly traded stocks, bonds, and cash. This will help to reduce your overall risk.
Bottom Line
Pre-IPO stocks are shares of companies that have not yet gone public. They can offer the potential for high returns, but they are also risky because there is no guarantee that the company will go public or that its stock price will rise after it does.
To buy pre-IPO stocks, you must be an accredited investor. Accredited investors are individuals who meet certain income or net worth requirements. Once you are accredited, you can buy pre-IPO stocks through secondary marketplaces, brokers, or crowdfunding platforms.
Invest in High-Growth Startups
Equitybee gives accredited investors access to high-growth, VC-backed startups. By funding employee stock options, accredited investors can gain investment exposure to private companies at past valuations. In exchange for funding the options, you will receive a percentage of future proceeds from any successful liquidity events. Subject to availability. Investments involve risk; Equitybee Securities, member FINRA
Invest in Private Companies
- Invest in pre-IPO companies through an EquityZen fund.
- $10,000 minimum investment
- Available to accredited investors only
It's important to do your research before investing in any pre-IPO company and only invest money that you can afford to lose.
References
- ^ U.S. SECURITIES AND EXCHANGE COMMISSION. SEC Modernizes the Accredited Investor Definition, Retrieved 11/10/2023
- ^ U.S. SECURITIES AND EXCHANGE COMMISSION. Accredited Investor, Retrieved 11/10/2023
- ^ U.S. Securities and Exchange Commission. Accredited Investor, Retrieved 11/27/2023
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