How to Buy Pre-IPO Shares as a Retail Investor

 

The image includes the requested four-panel comic summarizing how retail investors can buy pre-IPO shares, with English alt text: “A four-panel educational digital illustration in a simple cartoon style showing a man learning to buy pre-IPO shares: Panel 1: expresses interest in pre-IPO shares; Panel 2: checks eligibility requirements; Panel 3: uses platforms like EquityZen, Forge Global, StartEngine; Panel 4: considers liquidity, valuation, and regulatory risks.”

How to Buy Pre-IPO Shares as a Retail Investor

Investing in pre-IPO shares offers retail investors the opportunity to get in on the ground floor of promising companies before they go public.

While traditionally reserved for institutional investors, recent developments have made it more accessible to individual investors.

This guide will walk you through the steps to buy pre-IPO shares, the platforms available, and the risks involved.

Table of Contents

Understanding Pre-IPO Investments

Pre-IPO investments involve purchasing shares of a private company before it becomes publicly traded.

This stage is typically the final round of funding before an Initial Public Offering (IPO).

Investors aim to benefit from the potential increase in share value once the company goes public.

Eligibility Criteria for Retail Investors

To invest in pre-IPO shares, retail investors often need to meet certain criteria:

  • Accredited Investor Status: In the U.S., this typically means having a net worth of over $1 million (excluding primary residence) or an annual income exceeding $200,000 ($300,000 for joint filers).

  • Minimum Investment Amount: Many platforms require a minimum investment, often ranging from $5,000 to $20,000.

Platforms to Buy Pre-IPO Shares

Several platforms facilitate the purchase of pre-IPO shares for retail investors:

  • EquityZen: Offers access to pre-IPO shares from private companies. Minimum investment is typically $10,000.

  • Forge Global: Provides a marketplace for buying and selling pre-IPO shares. Offers data and insights on private companies.

  • StartEngine: An equity crowdfunding platform that allows investments in startups and pre-IPO companies.

Risks and Considerations

Investing in pre-IPO shares carries several risks:

  • Liquidity Risk: Pre-IPO shares are not easily sold, and investors may have to wait for the IPO or another liquidity event.

  • Valuation Risk: Private company valuations may not reflect actual market value, leading to potential overpayment.

  • Regulatory Risk: Changes in regulations can impact the company's ability to go public or affect investor rights.

Conclusion

Pre-IPO investments offer the potential for significant returns but come with considerable risks.

Retail investors should conduct thorough due diligence, understand the eligibility requirements, and be prepared for the illiquid nature of these investments.

Utilizing reputable platforms can provide access and information to make informed decisions.

Keywords: Pre-IPO, Retail Investor, EquityZen, Forge Global, StartEngine