For most people, the best time to buy a product is before it hits the market. The same is true for investing in stocks. While it’s not always possible to predict when a company will go public, there are some things you can do to increase your chances of buying shares at the right price.
Pre IPO investing is the process of investing in a company before it goes public. In other words, you will be buying stocks of private companies that have not yet been listed on exchanges. This is usually done by accredited investors (who are high net-worth individuals or institutions) or venture capitalists who are willing to take risks in hopes of getting a large return on their investment when they exit their position.
According to the professionals at SoFi, “Pre-IPO shares tend to be more expensive than those traded on exchanges because they are only available to select groups of investors and are often restricted for use only after an initial lock-up period expires.” The price per share can also be substantially higher than what you would pay once it gets listed on an exchange due to the fact that there’s a greater risk involved with purchasing these shares before they go public.
Before you start looking for pre IPO investment opportunities, it is important to choose the right company. The first thing to consider is profitability.
You need to find out if the company has been profitable for at least two consecutive years from its inception. If not, there’s a good chance that this startup will never become profitable at all.
Secondly, you need to look at its track record and see how well they have performed over a period of time. You should also check their business model and management team, as these are critical factors that determine whether or not the company will succeed in the future. Lastly, it would be helpful if you could estimate what sort of growth potential this startup has by looking at its current sales figures and market share.
Pre IPO investing comes with risks, just like any other investment. These risks can be divided into three categories:
- Risk of losing all your money: The chance that the company goes bankrupt before it can pay you back for your investment.
- Risk of not getting returns: If you invest in a pre IPO, there’s a good chance that the company won’t be able to meet its obligations to investors and will go bankrupt before paying off what it owes them. This is why only experienced investors should invest in pre IPOs—because they understand the risk involved with getting paid back (or not).
- Risk of being sued by investors: Investing in pre IPOs is often risky because some companies might not be able to meet their financial obligations to their investors or fail entirely due to mismanagement or fraud on behalf of management/ownership groups.
If you buy pre-IPO shares, it can be a great way to get in on the ground floor of the next big thing, but it’s not without its risks. If you want to invest in a pre-IPO but aren’t sure where or how to start, the above-mentioned things are what you should consider before making an investment decision.