Buying shares in startups in their early stages has been proven to be a great way to reap big. This means purchasing shares at the IPO (Initial Public Offering) stage. However, you can even reap bigger if you understand how to purchase pre-IPO stock.
While IPOs and pre-IPOs are great ways of earning higher returns, they come with real risks. Anything might happen before the company launches hence losing your money. It is best to invest what you can afford to lose.
What is pre-IPO stock investing?
Pre-IPO stocks are shares sold to investors by a private company before the company launches its IPO or goes public. The shares are normally purchased by institutional investors such as private equity firms, hedge funds, and retail investors.
Why do companies sell pre-IPO stock?
There are two major reasons why companies sell pre-IPO shares before going public. The first reason is to raise funds. Pre-IPO placements give companies an opportunity to raise money before going public. This is because the share price can be affected in different ways after the company has gone public and it may be difficult to raise enough funds.
The other reason why companies decide to sell pre-IPO stock is to get guidance from investors. In most cases, pre-IPOs are bought by hedge funds and large companies with a lot of resources and expertise. They are able to offer guidance to the company’s management on what to do.
What is the best way to invest in pre-IPOs?
While IPO is a common investment opportunity around the world, not many people understand how to invest in pre-IPOs. There are many benefits that come with this form of investment provided you know what you are doing.
Pre-IPO investing with SoFi has worked for many people. The most important thing is to carry out enough research on the company you want to invest in. Many people often make the mistake of investing blindly either because of pressure from other people or pure ignorance.
Can a retail investor buy a pre-IPO share?
Investing in pre-IPO is not as easy as many people think. This is because of the high entry barrier involved. That’s why most of those who invest are institutional investors with massive resources. Although you can participate as an individual investor, there is always a certain level of restriction.
Accreditation requirements
Most countries require people to fulfill a certain criterion before being able to buy pre-IPO shares. The criteria normally address two major questions: What is the income level of those allowed to participate? Secondly, what proof does an investor need to show that they meet the provided criteria?
Lock-in periods
Pre-IPO shares have what’s known as a lock-in period, during which investors are not permitted to trade or sell the shares. The goal is to prevent pre-IPO investors from disposing of the shares right after an IPO.
Bottom line
Pre-IPO shares can be a great way to reap big returns. However, you need to do proper research to avoid making losses after the company has gone public.
