Pre-IPO investing platforms have emerged over the past decade to provide liquidity to equity holders of high-growth private companies.
They also help startups raise money to grow their businesses and give investors a chance to buy equity in innovative companies.
There are two primary types of pre-IPO investing platforms available to investors which cater to startups in different stages of growth.
The first type is late-stage startup pre-IPO investing platforms — the main focus of this article.
The second type is early-stage startup investing platforms, more commonly referred to as equity crowdfunding platforms, and will be the focus of a forthcoming article.
You’ll find a table highlighting a list of the best pre-IPO investing platforms for late-stage startups toward the end of this article.
Jump to the list or continue reading about pre-IPO investing and how the platforms work.
Table of Contents
Late-Stage Startup Pre-IPO Investing Platforms
Employees and venture capital firms with equity in pre-IPO companies often lack liquidity.
This means that even though they own company stock worth potentially millions, the stock isn’t publicly traded, inhibiting their options to cash in on their newfound wealth.
They sometimes need cash for living expenses or to exercise stock options, requiring them to sell before the company is public.
Late-stage pre-IPO investing platforms exist to provide liquidity to founders, employees, and early investors of growing startups that haven’t gone public yet.
Late-stage startups are typically well-established businesses with hundreds or thousands of employees and are expected to complete a public offering in the next few years.
Current business valuations are baselined through previously completed private equity funding rounds, which provide a transaction value.
When a late-stage startup is still in the pre-IPO stage, company stock does not trade on the stock markets. Equity holders who want to cash out of stock must do so through a private transaction.
A few pre-IPO investing platforms have emerged to solve this liquidity problem, matching startup equity holders with accredited investors (only).
Pre-IPO investing platforms make it easy to transfer share ownership.
Since late-stage pre-IPO companies are more established with stable valuations, they are considered lower risk than early-stage startups. But like traditional IPO investing, pre-IPO investing comes with elevated risk.
Therefore, pre-IPO investing in the U.S. is only suitable for accredited investors, according to regulators.
An accredited investor has a net worth of more than $1 million, excluding their primary residence. Or, the investor can earn more than $200,000 of income annually or $300,000 with a spouse.
How do Pre-IPO Investing Platforms Work?
The first step toward investing on pre-IPO investing platforms is determining which platforms will help you reach your investments objectives.
If you’re looking to buy stock in established companies that will eventually trade on the NYSE or Nasdaq, look at late-stage startup platforms.
If you’re interested in emerging technologies and business ideas and are willing to accept the risk (and reward) that the companies you invest in may not thrive, equity crowdfunding platforms may be preferred.
As always, weigh your risk tolerance against your long-term investment objectives.
Each platform has a specific process for transactions. However, there are four basic steps to buying stock on pre-IPO investing platforms.
- Verify Accreditation
- Select, Review, and Reserve Investments
- Complete Paperwork
- Fund Investment
1. Verify Accreditation
Late-stage startup pre-investing IPO platforms will require you to verify accreditation before investing.
An accredited investor has a net worth of more than $1 million, excluding their primary residence. Or, the investor can earn more than $200,000 of income annually or $300,000 with a spouse.
Platforms typically use third-party verification services or ask for self-verification. Either way, investors will need to document proof of accreditation.
2. Select, Review, and Reserve Investments
The next step is to review available investments on the platform. Investors are provided with documentation regarding previous valuations in addition to conducting personalized research.
Since the companies are not public yet, investors will not receive comprehensive financial and risk information outlined in standard IPO S-1 filings.
The lack of such filings is why these investments are only available to accredited investors.
Once the investor has reviewed available materials, indicated desired investment amount, and decided to invest, she may be required to sign a term sheet at this stage.
Investors may receive some, all, or none of the shares reserved/requested.
This is typical in all kinds of IPO investing. No one is guaranteed access to IPO shares.
3. Complete Paperwork
If the investor has been verified as accredited and selected to receive shares in a specific pre-IPO offering, they will be asked to finalize their intent to purchase by signing the associated paperwork.
Paperwork is electronic.
The platforms also handle formalities with the private company and selling shareholders.
4. Fund Investment
At this stage, investors are required to supply their banking information for ACH transfers.
Once the paperwork is finalized and the transaction approved, an electronic ACH fund transfer is completed, and share ownership is officially transferred to the investor.
Fees vary by platform, as outlined in the table below. Some platforms charge a recurring annual fee, while others charge the investor at the time of purchase.
Best Pre-IPO Investing Platforms for Late-Stage Startups
Below is a quick comparison table with basic pre-IPO investing policies of each platform and links to browse listings.
Listings update frequently, so you’ll need to check back often or get on the mailing list to be aware of the latest opportunities.
| Platform | Terms | Take Action |
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Conclusion
Pre-IPO investing platforms are for two types of people.
- Equity owners who want to sell shares before the company is public
- Accredited investors who want to own pre-IPO late-stage startups
The platforms listed in the tables above are the most established businesses making this happen today.
Pre-IPO marketplaces are still somewhat new, so expect this list to change over time. The website will update the table as platforms come and go.
The information presented in this article was obtained through publicly available information. Accuracy is not guaranteed.
Contact me with suggestions to make this pre-IPO investing resource better.
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