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Pre ipo

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Pre IPO is a sub asset class of private equity, including mature, late stage companies that are still private, but shortly will IPO. They loosely include 'unicorns' which are companies with greater than a $1 Billion USD valuation. This asset class was popularized by companies like Uber, that waited until their valuations were $60B + before actually filing s1. Pre IPO is a colloquialism, it actually falls under Private Equity. Pre IPO is a grey market, although most of the participants are regulated banks, broker-dealers, and other types of financial institutions.

Technically Pre IPO is referenced as a placement that happens 'just before' the IPO.[1], however it has become to mean any investment in a Unicorn which will likely one day IPO, perhaps not in the next 90 days. Issues such as Facebook, Uber, and others have popularized this type of investment, as it provides a mix of risk and reward more suitable to accredited investors. For example, the music group U2 made more money on the Facebook investment than they did selling music in their entire career.[2]

The asset class is so interesting, even the CIA invests in it directly through its own Venture Capital unit called InQTel.[3]. Because Pre IPO is lightly regulated, it is strictly for accredited investors only. Suitability is the largest hurdle to qualify for if one wants to engage in this asset class.

The reason for the secondary market in Pre IPO is that companies do not always want to issue new primary rounds. So if an investor wants to by shares in ABC company, and the company does not want to issue shares to them (called primary), their only choice is to find a pre-ipo secondary market broker who can find a seller.

References[edit]

  1. "How Pre-IPO Placement Works".
  2. "U2's Bono Will NOT Make More on the Facebook IPO Than Throughout His 30-Year Music Career".
  3. "CLASSIFIED: The most powerful investor you never heard of". 2019-01-13.

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