How to Invest in Pre-IPO Stocks

Pre-IPO investing implies buying shares in companies before they’re publicly listed. Buying pre-IPO stocks grants you ownership in a private company with the hope that its value will rise upon going public. Buying pre-IPO stocks allows you to invest in an organization early, which can potentially result in substantial returns should the company do well post-IPO.

Unlike IPO shares, pre-IPO stocks can be purchased at discounted prices, making it a cost-effective entry. Also, adding pre-IPO shares to your portfolio can help diversify your investments. Discussed below is how to invest in pre-IPO stocks.

Educate yourself

Educating yourself about pre-IPO investing is an invaluable technique that can result in improved decision-making and better financial outcomes. A good understanding of pre-IPO stocks comes with several benefits, including the following:

• Risk awareness: Educating yourself about pre-IPO shares helps you understand this investment’s risks, enabling you to evaluate and manage them successfully
• Ability to adapt to changing markets: As an informed investor, you can quickly adapt to changing market conditions
• Long-term success: Educated pre-IPO investors make informed choices when investing and don’t depend on their emotions, resulting in long-term success

Determine eligibility

Unlike in the past when pre-IPO investing was accessible to accredited investors, individual investors can now access this investment thanks to reliable secondary marketplaces and new laws that make private deals more accessible. 

Nonetheless, investing in growth-phase private companies requires you to meet certain eligibility criteria because private markets aren’t as strictly regulated and have a higher risk. This qualification requirement is meant to safeguard investors, plus the regulators want to be certain that individuals only invest in pre-IPO shares if they can afford the possible downside. As a certified investor, you must meet the net worth or income threshold.

Evaluate potential pre-IPO investments

Detailed research comes in handy when assessing potential pre-IPO investments. As an investor, you must evaluate the private company’s background, management team, and financial performance to ascertain the investment matches your risk tolerance and goals. Studying these factors enables you to make informed choices about pursuing possible pre-IPO investing opportunities.

Buy pre-IPO shares on a secondary marketplace

Buying pre-IPO shares via secondary marketplaces, such as the Hiive private stock marketplace, is one of the most common options for investing in pre-IPOs. These platforms link accredited investors with other early investors and company employees seeking to sell their shares. Considering the following factors can help you find a reliable marketplace from which to buy pre-IPO shares:

• The platform’s reputation
• Regulatory compliance
• Transaction fees
• Liquidity
• Customer service
• Access to diverse deals
• The marketplace’s expertise in the particular sector you’re interested in
• Liquidity

Purchase pre-IPO stocks directly

Becoming an angel investor and buying pre-IPO shares directly from the company is another way to invest in pre-IPO shares. Nonetheless, you must know someone in the organization or be a well-known individual with whom the firm wishes to work. Since buying pre-IPO shares directly from the company doesn’t involve intermediary oversight, you must understand the regulatory environment and conduct in-depth due diligence for successful investing.  

Invest through pre-IPO venture capital funds

Venture capital funds are another option for investing in pre-IPO stock. These funds invest a lot of money in high-growth startups, allowing outside investors to get involved. Investing in these indirectly exposes you to Pre-IPO venture capital funds to consider include the following:

• Public venture capital companies: They pick venture capital companies that will give access to pre-IPO organizations
• Private equity ETFs: They give you indirect access to pre-IPO shares

Pre-IPO investing can be potentially lucrative if the company you’re investing in does well post-IPO. Understanding how to invest in pre-IPO stocks can help ensure success.