We’ve all heard the stories of lucky startup investments turned financial windfalls.
Investing in early-stage companies tends to be more affordable, and can result in exponential returns if all goes according to plan.
Typically, the best opportunities lie in private companies — a fact that can make investing more complicated.
Get to know the inner workings of pre-IPO stock with this guide to:
- What pre-IPO stock means
- Accreditation requirements for private equity investors
- 3 tools for investing in pre-IPO stocks
- How (and why) to use Kubera to track pre-IPO stock values
What is Pre-IPO Stock?
An initial public offering (IPO) is the sale of a company's stock to the public, via the stock market, for the first time.
That means pre-IPO stocks are private company shares that are sold to investors before it becomes a public company.
Institutional investors, hedge funds, venture capitalists, and private equity firms most often buy these shares, but high-net-worth individual (HNWI) investors sometimes get into the mix.
Pre-IPO stock price depends on several factors, including the company’s value, the company valuation of similar (now) publicly-traded companies, track record, number of shares, and more.
Why do companies sell pre-IPO stock? There are a few common reasons:
- The company is ready to expand, and needs to raise capital to do so
- The company wants to bring on experienced advisors, and offering equity gives them a way to attract and compensate these people
Remember, while getting in on stocks pre-IPO can have major upsides, there is also a very real risk of loss. Only consider purchasing pre-IPO stock if you’re prepared to risk losing all the money you put in.
Note: Accreditation Requirements for U.S.-Based Private Equity Investors
Before we get any further we have to address the elephant in the room: accreditation.
In the U.S., private business stock is regarded by the Securities and Exchange Commission (SEC) as an unregistered security. Their way to ensure these more risky securities don’t fall into the wrong hands is to require the investor to be accredited.
Accreditation is achieved if an investor meets any of these requirements:
- Has earned $200K+ per year ($300K+ with a partner) for the previous two years
- Has a net worth over $1 million (alone or with partner)
- Is a general partner, executive officer, or director at the company where they want to buy pre-IPO stock
Accredited investors can access investment resources that individual investors can’t. Think private equity, hedge funds, venture capital, and more.
Oddly, there is actually no formal procedure or certification that qualifies someone as “accredited.” The company issuing the stock must prove their status. If you’re a HNWI (somebody with at least $1 million in liquid assets) or well on your way to becoming one, you’re probably qualified or close to qualified to purchase the pre-IPO shares you’re interested in.
3 Tools for Investing in Stocks From Pre-IPO Companies
If pre-IPO shares are for you, here are three different tools for investing in three different ways.
Pre-IPO Marketplace for Accredited Investors: EquityZen
First up, a tool for accredited investors: EquityZen.
EquityZen is a broker-dealer that buys and sells securities on behalf of its clients. In this case, that’s you, the accredited investor.
The platform was first created when its founders discovered there was a huge market of shareholders wishing to sell their shares — and investors looking to invest in startups before the stock became too expensive.
Using EquityZen’s extensive marketplace, accredited investors can buy pre-IPO shares that correspond with their objectives. Most of the securities up for grabs on EquityZen are from tech companies.
Here’s how they offer up their stock purchases:
- With a single-company fund, investors buy into an EquityZen fund which buys stock from a single company
- With a multi-company fund, investors put money into an EquityZen fund that buys shares from multiple companies
- With their direct share set up, EquityZen facilitates the purchase of pre-IPO shares — negotiating with the seller on behalf of the investor, gaining approval from the issuer company, etc.
EquityZen’s minimum investment requirement varies depending on how you choose to purchase stocks. Direct shares start at $200,000, but single-company funds start at $10,000.
Learn more about EquityZen and its alternatives for accredited investors from EquityZen Alternatives for Investing in Pre-IPO Shares.
Go Pre-IPO by Funding Employee Stock Options: Equitybee
Equitybee is a unique crowdfunding platform that brings together accredited investors and startup employees.
The important distinction here is that these employees cannot pay the costs involved in converting their options to actual shares because of the high fair market value of their stock options.
Previously, they wouldn’t have ever been able to access their equity. But with funding from investors via Equitybee, employees can convert and draw value from their shares. After the IPO date is reached and the lockup period (similar to a vesting period) is complete, the employee and the investor each receive a portion of the company's stock value.
Equitybee’s minimum investment amount is $10,000 per offer.
Crowdfund Your Way Into Private Companies: SeedInvest
Another crowdfunding tool, SeedInvest empowers everyday investors to invest in private companies.
SeedInvest directs people looking for investment opportunities to hundreds of startups and other privately held businesses seeking financing.
Investment opportunities are available through SeedInvest for both accredited and non-accredited investors. It also has an automatic investing option that can create a varied portfolio of startup investments. SeedInvest is a registered broker-dealer that promises due diligence to ensure customers are making the best investments for their portfolios.
SeedInvest minimums to get started go as low as $1,000.
How (And Why) to Use Kubera to Keep Track of Pre-IPO Stock Values
Once your pre-IPO stocks are acquired, it’s important to think about how you’re going to keep track of their value.
Why?
For pretty much the same reason it’s important to keep track of the value of any kind of stock.
You need to know if the value of an asset in which you’re invested is going up or going down — so you can make an informed decision on whether you want to keep it, double down on it, or start looking for a way to unload it to make room for something more promising.
Thankfully, Kubera gives you all the data you need to make that kind of smart decision.
Kubera is personal balance sheet software for DIY, high-net-worth investors.
Any asset you can think of — Kubera can assist you in monitoring and managing it.
Stocks from all around the world? We support every major stock exchange. Just add your brokerage accounts to Kubera's user-friendly interface to watch them update in real-time. Alternatively, use our custom integrated stock ticker to follow practically any stock, ETF, or mutual fund.
However, the tracking doesn’t end there. Almost anything you can possess can be tracked using Kubera's spreadsheet-like interface. From investment bank accounts to credit cards, loans, NFTs, crypto assets, DeFi assets, cash, coins, collectibles, real estate, savings accounts, and beyond. With our custom-built backend that implements several cutting-edge aggregators, Kubera connects with 20,000 financial institutions — and growing.
To help you further understand what’s going on with your portfolio, Kubera offers an IRR for investment calculator, which can find the internal rate of return (similar to ROI) on pre-IPO investments in your preferred currency using cash flow, current value, pre-IPO price, and holding time. Together with our Recap screen that provides a thorough overview of portfolio performance, you have all the insight you need to wisely diversify into pre-IPO stocks.
Sign Up for Kubera to Diversify Into Pre-IPO Stocks
If the stress of keeping track of pre-IPO stock value is holding you back from diversifying your investments, consider making another investment first — one in Kubera.
Kubera’s price is affordable and simple to understand. And, Kubera can even enhance the relationship you have with your financial advisor or other wealth professional. Our white-label solution will enable them to provide you and the rest of their clientele with a more sophisticated stock and portfolio management experience.
