Updated: Sep 9, 2022
Pre-IPO investing has advantages that are difficult to duplicate in any other investment market. Let’s look at some of them. The Opportunity to Get Exponential Returns Unlike public stocks, pre-IPO companies allow you to make money in many different ways, including not only the standard ways (like dividends) but also through capital appreciation and income from private sales/liquidity events. In fact, as we will soon see, the potential returns of pre-IPO investments may be exponentially higher than those of public stocks!
Entering at the right time One of the best times to invest in a company is just before it goes public. That’s because you have the chance to get in on the ground floor and watch your investment grow exponentially. When done right, pre-IPO investing can give you returns that are impossible to find anywhere else. Trient Press is a perfect example. We are a small, independent publisher that is going public. Our IPO is set for later this year, and they are already getting a lot of buzz. If you get in now, you could see your investment grow 100x or more over the next few years. But even if we don’t do as well as expected, our pre-IPO investors will still be much better off than they would be with any other investment. When we go public, investors will receive shares at $10 each instead of $20 or higher like most companies when they go public. So even if our share price falls short of expectations, it will still likely be worth many times what you paid for them today.
Value of shares before they go public When a company first goes public, its shares are usually offered at a price below what they will be worth in the future. This is because the company is selling a portion of itself and needs to entice potential investors. By buying shares before the IPO, you are essentially getting in on the ground floor of the company. As the company grows, so too will the value of your shares. This can lead to exponential returns that are difficult to find elsewhere in the investment world. Investors with Facebook stock were given an opportunity to buy at $38 per share back in 2012 and see their investment grow by over 1,000% today. Though there is no guarantee of this type of return with pre-IPO investing, it does provide more opportunities for profit than would otherwise exist without pre-IPO investing. If a company fails after going public, it’s not just those who bought during the IPO who lose out—the people who bought early have also lost out due to devaluation of their shares as well. The Early Buyer Advantage: With IPOs, many people invest when an offer becomes available; this means that there are often heavy loads placed on exchanges just after an IPO date has been announced.
Rights offerings after an IPO After a company goes public, it will often do a rights offering. This is when the company sells additional shares to the public, usually at a discount to the current market price. This is a great opportunity for investors to get in on a good deal. It also gives them an opportunity to buy more of the stock if they already own some. The Benefits of Diversification
Equity raises before IPOs When a company raises equity before going public, it’s typically doing so at a lower valuation than it will be once it’s on the stock market. That means that there’s more potential for the value of your investment to increase. Additionally, you’re investing in a company before it has to disclose its financials to the public, so you can get in on the ground floor and have a better idea of its true value. Finally, pre-IPO companies often have restrictions on how much they can raise and how they can spend that money, so there’s less chance of them wasting your investment. However, even if the company fails, investors who participate in a round prior to an IPO may be eligible for additional compensation (e.g., through warrants or preferred shares). What are you waiting for?
Scarcity – there aren’t many pre-IPO opportunities out there When a company goes public, anyone can buy shares. But before a company goes public, only a select few can invest. That’s because the Securities and Exchange Commission (SEC) requires companies to file paperwork before they can start selling shares to the general public. This process is called an initial public offering (IPO). And it usually takes a company about six to nine months to complete. So, if you want to get in on a pre-IPO opportunity, you have to be an accredited investor or buy directly from the company. What does that mean? It means, in most cases that you either make $200,000 per year or have a net worth of at least $1 million. Yes, this excludes most people! But there are some exceptions. For example, spouses of accredited investors are also considered accredited investors. OR you are well informed and follow the company closely. Contacting the compnay directly can net pre-IOP stock. But his is only done under their investor relation page or with sites like wefunder or forgeglobal.com .
Network effect – working with professional investors who have access to pre-IPO opportunities is a huge advantage When you’re able to get in on the ground floor of a company that is about to go public, you have the potential to make a lot of money. This is because there is usually a big run-up in the stock price when a company goes public. The reason for this is the network effect. This is when a company’s value increases as more people use it. For example, think of Facebook. The more people that use Facebook, the more valuable it becomes. This is because people are constantly sharing information and connecting with each other on the platform. The same thing happens with pre-IPO companies. As more and more people invest in them, their value goes up exponentially. The more investors who invest in a pre-IPO company, the higher its IPO will be. Of course, not all investments work out this way. It can be risky investing in any investment before it goes public. There is always the possibility that things won’t turn out well for a company before they IPO and you could lose your investment if they don’t reach their projected goals or fail completely before going public. However, if things do work out, then you have the opportunity to reap exponential returns on your investment as they prepare to go public!
Critical mass – being one of the first outside investors gives you much more weight than a single investor later on. When a company is just starting out, the opportunity to get in early gives you a lot more weight than if you were to invest later on. This is because your investment can help the company reach critical mass.
Cost savings when compared with VC investments (no due diligence, no reports, no management fees) One of the main advantages of pre-IPO investing is the cost savings when compared with VC investments. With pre-IPO investing, there is no need for due diligence, reports, or management fees. This can save you a considerable amount of money, which can be reinvested in the company or used to finance other aspects of your life.