“ … I think there’s quite a bit more time to run through, and you’ve got to be tactical and you’ve got to be diversified.”

We agree with the sentiment from Trevor Greetham, head of multi-asset at Royal London Asset Management, that the best way to ride out the latest bear market is to get tactical and get diversified. 

Even for the investor who has tried out just about every asset there is to pursue portfolio diversification, there is one lesser-known asset type you may not have considered that’s currently gaining traction — the pre-IPO share.

Intrigued by this new asset that might just help you get more tactical and diverse in your investment approach, and hopefully insulate against the economic downturn that many predict is coming?

Then don’t miss today’s article, where we’re going to cover:

  • The ins and outs of pre-IPO shares 
  • Why right now is the time to start thinking about this creative asset class 
  • Some helpful tools for getting started with pre-IPO shares 
  • Balance sheet software and other additional tools to further your diversification efforts

What are Pre-IPO Shares?

IPO stands for “initial public offering.” When a company “IPOs” or “goes public,” it makes its shares purchasable to public investors. 

When we talk about pre-IPO shares, we’re talking about equity compensation in the form of private company shares that are held by employees and investors. These shares are issued by the company and are not available for purchase on the public stock exchange, because the company hasn’t gone public. 

Pre-IPO shares are a type of early-stage investment that help balance out the more prevalent late-stage investment opportunities. They exist on what’s called the “private market.”

Why is Now the Time to Consider Pre-IPO Shares?

Research indicates that the first IPO as we know it took place in 1602, when the Dutch East India Company sold bonds and shares to the public in order to raise money for operations. 

So, considering that the concept of IPOs and shares both pre- and post-IPO have been around for centuries — why is now such an ideal time to start considering this investment strategy more closely?

It all goes back to the pre-recession indicators we’re currently seeing. 

From May 2021 to May 2022, there was an 80% decrease in companies going public. This is due to ongoing market downturns, which decrease the valuation companies are able to get. Issuers that want top dollar for their shares often choose to hold off on going public until markets improve. 

In addition, as a general trend, private companies are also staying private for longer than they used to. 

This means more shareholders than ever before are sitting on long-term illiquid assets that they may be looking to offload for assets with more liquidity — such as cash. 

And that makes it an inventor’s market for those who are willing to dive into pre-IPO shares.

Sound like you? Then let’s quickly make sure you meet the requirements for investing in pre-IPO shares before we start exploring the tools that will help you do so. 

market downturns stall IPOs

A Note on Accredited Investors in the U.S.

In the U.S., private company stock is typically considered an unregistered security by the Securities and Exchange Commission (SEC). In order to purchase an unregistered security, a person must be what’s considered an accredited investor. 

To be considered an accredited investor by the SEC, a person must meet any one of these requirements: 

  • Have 2+ years of annual income exceeding  $200K, or $300K with a partner — with the expectation that income will continue or grow in the current year. 
  • Have a net worth over $1M, individually with a partner. 
  • Be a general partner, executive officer, or director at the company from which they want to purchase unregistered securities.

Accredited investors enjoy access to exclusive investment vehicles that individual investors do not, such as private equity, hedge funds, venture capital, and other higher-risk yet higher-reward opportunities.

Despite sounding quite official, there is actually no process or certification required to be named an “accredited investor.” Proving this status requires due diligence from the entity issuing the security.

With that in mind, becoming an accredited investor feels a little more accessible. If you’re a high-net-worth individual (HNWI) or on your way to becoming one, you probably meet the requirements to add pre-IPO shares to your portfolio! 

But how? 

That’s coming up right now in our list of some of the top tools that are empowering investors to diversify into pre-IPO shares.

And even if you don’t meet the requirements to be considered an accredited investor, or are just looking for alternative approaches for any reason, we also included a few recommendations for similar platforms that don’t require accreditation.

EquityZen: Connecting Accredited Investors with Pre-IPO Shares

EquityZen: Connecting Accredited Investors with Pre-IPO Shares

EquityZen is often one of the first tools that comes up in the discussion of pre-IPO equity. 

Founded in New York in 2013, EquityZen is a broker-dealer, which means it’s in the business of buying and selling securities — in this case on behalf of its customers.

EquityZen’s robust marketplace connects accredited investors to pre-IPO shares that are up for sale, enabling them to purchase those that align with their goals. The online platform sprang to life when its founders realized there’s a whole world of stockholders looking to liquidate their shares as well as investors looking to get in on potential unicorns (startups that grow to $1B+ in value) before the stock becomes unattainable. 

Most of the opportunities EquityZen features are from tech companies. Their offerings fall into three categories:

  • Single-company funds: With single-company funds, investors put their money into a single EquityZen fund, which then acquires shares from one specific company.
  • Multi-company funds: In a multi-company fund setup, investors fund an EquityZen investment vehicle that then purchases shares from multiple companies.
  • Direct shares: As part of its broker-dealer capacity, EquityZen will also facilitate the purchase of direct pre-IPO shares. In this case, they act on behalf of the investor to negotiate the price with the seller and get company approval for the transaction.

What happens if a company that you purchased pre-IPO shares in via EquityZen does eventually go public? You receive those shares after a lockup period!

The minimum investment EquityZen requires depends on which category in which you’re investing. Single-company funds may require as little as $10,000 upfront, while getting started with direct share purchases will require at least $200,000.

EquityZen can be more expensive when compared to alternatives, but it makes up for it with carefully-vetted pre-IPO opportunities and personalized service for those interested in purchasing direct shares.

EquityZen Alternatives 

Interested in seeing what else there is on the market that’s giving EquityZen a run for its money?

Here are a few EquityZen alternatives worth exploring. 

Forge Global: High-Volume Investment Platform for Private Investments

Forge Global: High-Volume Investment Platform for Private Investments

Forge Global, founded in 2014, acquired fellow secondary market trading platform SharesPost in 2020, making it one of the larger operations on this list. 

The Forge platform operates much like direct competitor EquityZen, but perhaps with a bit more focus on the easy-to-use marketplace aspect. 

With Forge, accredited investors can browse through hundreds of thousands of options when it comes to pre-IPO investment opportunities. You can even use the platform to stay up to date on companies that really interest you and research valuations and pricing trends.

When you find a deal you really like, it’s time to fill out a form with some basic info, including how many shares you’d like to buy. At this point, one of Forge’s “Private Market Specialists” will get in touch to help broker the translation and seal the deal. 

Forge even goes full circle, providing custodial services as well as portfolio valuation and management features for pre-IPO shares purchased via their platform.  

The minimum investment with Forge is $100,000, per investment opportunity — though they do make exceptions to that rule. This is a rather high minimum when you consider it applies to every transaction. That’s why we think Forge Global is best for the serious, experienced accredited investor who values the self-serve lean of their marketplace. 

Nasdaq Private Market: Uniting Companies, Employees, Investors, and Beyond

Nasdaq Private Market: Uniting Companies, Employees, Investors, and Beyond

Since 2014, Nasdaq Private Market has been a solution that’s focused more on the private company side of the equation — providing a suite of tools that enable entrepreneurs at technology companies and beyond to raise capital, so they can make unpressured decisions around when and even if to go public. 

But in 2021, Nasdaq joined up with SVB Financial, Citi, Goldman Sachs, and Morgan Stanley to add a secondary trading platform to the mix. This expanded their capabilities to enable shareholders to trade in private company equity for more liquid assets. 

Nasdaq Private Market president Eric Folkemer basically said the writing was on the wall when it came to why they made this move. 

“The one thing that I think we can all agree to at this point is that the secondary markets are not a moment-in-time need,” they said, according to Institutional Investor. “Many of the stakeholders or employees expect it to a degree, especially as companies are staying private longer.” 

This new element of the Nasdaq Private Market platform will allow accredited investors to find deals and complete private company stock transactions digitally. Nasdaq Private Market facilitates auction-style sales for private company equity, which may be why we were unable to find any information on investor minimums to get started. 

However, what we do know is that Nasdaq Private Market has stricter qualifications for the companies it allows on its platform than many of its competitors have. To be listed in the Nasdaq Private Market marketplace, a company either must be valued at $50M+ or have raised at least $30M in the preceding two years. In addition, they must be on track to generate a minimum of $750K annual net income.

In light of these requirements, we assume that accredited investors who intend to trade via the Nasdaq Private Market should come prepared to spend a pretty penny on pre-IPO shares. In return, they can be confident that the companies in which they’re investing are profitable, which bodes well for their returns.

Other Tools for Diverse Investors

A platform for facilitating transactions may not be all you need to successfully add pre-IPO shares to your portfolio. 

If you find yourself looking for an option that doesn’t require accreditation or provides better portfolio management support as you grow more diversified, just keep reading.

Kubera: Track Diverse Assets, Global Stocks Included

Kubera: Track Diverse Assets, Global Stocks Included

The newest platform on this list, 2020’s Kubera is balance sheet software for modern, diverse investors. 

Name an asset — any asset — and Kubera can likely help you track it. 

Got stocks from around the globe? Just add your online brokerage accounts to Kubera’s easy-to-use interface and watch in awe as they stay up to date in real-time. Or, you can use Kubera’s integrated stock ticker to track almost any stock, ETF, or mutual fund in existence. Kubera supports every major stock exchange in the US, Canada, UK, Europe, Asia, Australia, and NZ.

Of course, the fun doesn’t stop there. Use Kubera’s user-friendly, spreadsheet-like interface to track bank accounts, investment accounts, credit cards, loans, crypto assets, DeFi assets, NFTs, cash, coins, collectibles, real estate, savings accounts, and, well, almost anything else you can own. 

Thanks to a custom-build backend that integrates with multiple aggregators, Kubera users enjoy deep coverage and reliable connectivity to over 20,000 financial institutions — and growing. 

And it’s not just about tracking all your diverse and alternative investments. Kubera knows it’s also about understanding their performance so that you can keep growing and improving your portfolio. That’s why the recap feature provides a detailed view of how your entire portfolio, as well as individual allocations, are performing on a daily, weekly, monthly, quarterly, and yearly basis. 

The cherry on top is Kubera’s automated internal rate of return (IRR) calculator. By taking into consideration purchase price, contributions, withdrawals, and holding time; Kubera is able to find IRR for investments of all types.

Kubera helps diverse investors monitor portfolio performance so they can safely and successfully diversify into pre-IPO shares — and beyond.

Equitybee: Financial Support to Exercise Your Stock Options

Equitybee: Financial Support to Exercise Your Stock Options

Hitting the scene in 2017, Equitybee is an early entry into the young category of “employee options crowdfunding platforms.” 

What does that mean exactly? It means that it connects accredited investors with startup employees — employees who can’t afford the fees associated with converting their stock options to actual shares, due to high market value. In the past, these employees would have to walk away without ever accessing their equity. But with platforms like Equitybee, workers gain share ownership while investors get the chance to access private market assets.

If the company does eventually IPO, employees and investors share the stock value and investors are also paid back their initial investment, plus interest. 

SeedInvest: Crowdfunded Investment in Private Startups, No Accreditation Needed

SeedInvest: Crowdfunded Investment in Private Startups, No Accreditation Needed

SeedInvest is another crowdfunding platform, but one that’s focused on making startup investing accessible to everyday investors. And with minimums as low as $1,000, it’s one of the few investment platforms with opportunities that are actually available to a wide range of people. 

Established in 2012, SeedInvest connects hundreds of startups and private companies in search of funding to thousands of investors who are looking for the best place to put their money to diversify their portfolios. 

SeedInvest has investment opportunities for both accredited and non-accredited investors. It even features an automated investing option that builds a diverse portfolio of startup investments with little input needed from you. 

Is It Time to Add Pre-IPO Shares to Your Portfolio?

The market turmoil that most financial forecasts see on the horizon means that right now is a really good time for smart investors to diversify further. With all the helpful tools in the article at your disposal, why not try adding pre-IPO shares to your portfolio? 

If it’s keeping track of those shares that worries you, you’re not alone. The rapid expansion of the modern portfolio is why we created Kubera in the first place. 

Get started by taking a tour of how Kubera works or sign up right now to begin your free trial + affordable subscription! 

Kubera can even supercharge the relationship you have with your financial advisor, wealth manager, or other portfolio professional. Once they implement Kubera’s white-label solution, they’ll be able to offer you and the rest of their client roster a smarter, more modern experience. 

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