Investing in unlisted shares and pre-IPO companies offers investors the potential to pursue higher rewards through taking on higher risk. These types of shares aren’t available to the general public and getting your hands on them takes a little effort. Let’s examine a few easy ways you can take advantage of these opportunities.
What Are Pre-IPO Companies and Shares?
Pre-IPO companies are private companies that intend on going public so they can raise funding for their ventures. Most investors that learn about the company’s intentions wait until the stock is listed so they can purchase it.
Depending on the regulations that govern stock sales, restrictions can be placed on shares that are purchased before being listed. These restrictions are usually time constraints on when the pre-IPO shares can be sold into the market by their owners.
This is done to prevent pump and dump schemes where parties buy stocks in the pre-IPO stage only to sell upon listing, causing a crash in the price.
1. Buy From Pre-IPO Funds
Pre-IPO funds are a great way to gain access to multiple unlisted shares. Much as with mutual funds, managers create a portfolio of pre-IPO companies that meet the criteria of investors.
The people that invest in pre-IPO funds are less risk-averse than those seeking the security of a mutual fund but still seek to mitigate risk.
Pre-IPO funds are usually large private equity funds or hedge funds that invest in start-ups and other pre-IPO organizations. This gives them direct ownership of unlisted shares they can then offer to their investors in the form of a fund.
Electing to invest in a pre-IPO fund has the disadvantage of not offering the ability to buy a particular stock. As with a mutual fund, when you’re buying shares in a pre-IPO fund, you are investing in a basket of companies that managers select.
2. Buy Shares in Pre-IPO Companies From Intermediaries
You can purchase unlisted shares from intermediaries that buy shares from employees of the pre-IPO companies. Oftentimes, shareholders from the organization are looking to de risk before the company is listed.
Intermediaries offer them a way to sell their shares before the IPO.
This is a win-win for both sides as the employees can sell out of their positions while investors can avoid the volatility that comes with an initial public offering.
3. Consult With an IPO Specialist
Certain financial advisors have extensive experience with pre-IPO companies. SoFi can help you with everything you need regarding how to buy pre-IPO shares. As per the experts at SoFi Invest:
SoFi Active Investing members can invest in IPOs with no account minimums. Money in your SoFi Money® cash management account is separate from money in your SoFi Invest accounts.
If you have SoFi Money, you can instantly transfer up to $50,000 to a SoFi Active Invest account
4. Invest in Unlisted Shares for Higher Returns
Choosing to invest in unlisted shares holds the potential for higher returns. Consult an experienced financial expert for the ability to buy future high-performing stocks at pre-IPO prices.