Traditionally, investors have eagerly awaited initial public offerings (IPOs) for their chance to buy into promising start-ups.
However, with companies tending to stay private for longer, IPO investors are increasingly having to delay their ambitions to grab a piece of the next unicorn.
Fortunately, a growing number of companies are now offering another option: pre-IPO shares. For investors, they provide an earlier entry point into a sought-after company – often at a discount to the proposed IPO price.
What is the pre-IPO stage?
Some investors think of an IPO as the first opportunity to buy shares in a private company. While that is true for some companies, more and more are choosing to offer investors a chance to buy stocks while they are still private, in what is known as the ‘pre-IPO’ stage.
For companies planning to go public, the pre-IPO stage is an opportunity to raise capital and firm up the chances of IPO success. Companies can test the public appetite while continuing to reap the benefits of private markets.
Meanwhile, for early investors, pre-IPO buying opportunities are often prized because they tend to be attractively priced. Investors who accept the risks of less liquidity and transparency can often buy in at much lower prices prior to the IPO.
Should I invest in stocks or pre-IPO?
Deciding whether to go for listed or pre-IPO opportunities comes down to investor preferences and objectives. There are advantages and disadvantages of both and often we see investors diversifying with a combination of the two.
Having said that, there are a few characteristics we tend to see in pre-IPO investors, including:
- A desire for yield – Generally, pre-IPO stocks are priced at a discount when compared with IPOs or companies listed on a stock exchange like the ASX.
- A longer investment horizon – Typically, institutional investors enter the pre-IPO market with a longer-term holding view.
Financial knowledge and acumen – Pre-IPO opportunities are often restricted to sophisticated investors, with high assumed knowledge of investment markets and the capacity to carry out their own due diligence. Pre-IPO companies do not have the same disclosure requirements as listed entities.
Other things to know
Historically, pre-IPO investors have had little access to trading volume and price realization, due to the way private markets operate. However, PrimaryMarkets has overcome that barrier by presenting companies with public information and sharing the trading depth, pricing and volume for each of the opportunities listed on the platform.
As a result, investors can get richer insights into how large and small offers may affect a company’s price and, most importantly, they can trade in companies at the pre-IPO stage, which have traditionally been difficult to access.
How to invest on the PrimaryMarkets global platform
As an institutional or high-net-worth investor, trading pre-IPO companies on PrimaryMarkets is simple.
- Sign up to PrimaryMarkets with an email address.
- Once you are ready, complete the KYC and AML check and Sophisticated Investor check process online.
- Once the checks have been completed and reviewed, your status will turn to green.
- Begin trading by entering your buy or sell order via the trading page.