As company values increase with each successive round of venture capital or private equity investment, pre-IPO investors could potentially see a substantial increase in the value of their investment (though that is not always the case). For investors seeking high risk, high reward investment opportunities, pre-IPO investing may be a good fit.
Here, we will review what pre-IPO investing is, the differences between investing pre-IPO in early- and late-stage startups, the pros and cons of each, and how you can invest in startups pre-IPO.
What is pre-IPO investing?
Pre-IPO investing is investing in a startup before it goes public via an initial public offering (IPO). While investing in early-stage startups is technically pre-IPO investing, pre-IPO investing is a term most commonly used in reference to investment in late-stage privately-held companies, which tend to be closer in their lifecycle to achieving an exit, though, of course, there is no guarantee of a successful exit or any exit at all.
Investing in seed and early-stage startups
Seed and early-stage startups are often seeking investment capital to put towards product development, building out a team of employees, and formalizing customer acquisition strategies. While seed-stage companies tend to be focused on product development, early-stage companies usually have a handful of users testing a beta product while honing their go-to-market strategy and developing sales channels.
Our Regulation Crowdfunding (Reg CF) offerings and Regulation D (Reg D) primary offerings are usually the seed or early-stage phase of development. Reg CF investment opportunities are open to both accredited and non-accredited investors, while Reg D primary offerings are only open to accredited investors.
Pros and cons of investing in early-stage startups
The most significant benefit of “getting in early” as an investor in a seed or early-stage startup is the return potential should the startup achieve a successful exit. On the flip side, while these investments may have high-reward potential, they are incredibly risky. Therefore, they are only suited to investors who are comfortable with the knowledge that they may lose their investment in its entirety. These investments are also long-term, making them unsuitable for investors seeking a fast return or who may quickly need liquidity.
Investing in late-stage startups
Late-stage startups are more fully developed, have been in business for at least a few years, and tend to show notable revenue growth (however, they may not yet be profitable). Typically, they have demonstrated viability, a well-known product, and a strong market presence. Late-stage startups have generally reached a point of positive cash flow generation and have started to test expansion into tangential markets. Our Regulation D secondary offerings are typically late-stage companies.
Pros and cons of investing in late-stage startups
For investors who want in on pre-IPO investing but are more risk-averse than early-stage startup investors or are seeking a faster potential ROI, late-stage pre-IPO investments may be an attractive option. Investors can still seek some of the benefits of investing pre-IPO while also having more information at their disposal to guide decision-making. Not only can they see how a company has grown and performed, but they can see what big names and institutional investors have backed the company. That said, these investments are still highly risky and suited to investors who are comfortable with the possibility of seeing no return on their investment and do not have high liquidity needs.
Become a pre-IPO investor
Whether you’re looking for early- or late-stage startup investments, we’ve got you covered. You can sign up to become a MicroVentures investor for free here. Once you’ve created your MicroVentures investor account, you will be asked a few questions that will help us better gauge your investment experience and needs, including whether or not you’re an accredited investor.
If you are a non-accredited investor, you will be able to view our current Reg CF offerings and their funding documents after setting up your account. If you are an accredited investor, we will reach out to you over the phone to confirm your accredited status. After your account has been accredited status has been confirmed and your account has been activated, you will be able to browse our Reg D primary and secondary offerings.
The information presented here is for general informational purposes only and is not intended to be, nor should it be construed or used as, comprehensive offering documentation for any security, investment, tax or legal advice, a recommendation, or an offer to sell, or a solicitation of an offer to buy, an interest, directly or indirectly, in any company. Investing in both early-stage and later-stage companies carries a high degree of risk. A loss of an investor’s entire investment is possible, and no profit may be realized. Investors should be aware that these types of investments are illiquid and should anticipate holding until an exit occurs.