What is a pre-IPO marketplace?
The market for late-stage venture-backed companies has grown significantly in recent years, emerging as a potential growth engine for portfolios. In the past, many of the largest and most successful startups saw an IPO as the ultimate goal to achieve liquidity for early investors and founders. Today, many companies are delaying or foregoing IPOs, with the average time between a company’s founding and its IPO increasing from just under seven years in 2014 to nearly 11 years in 2024.1 And while people often refer to late-stage venture-backed companies as the “pre-IPO market,” some of these companies may choose to remain private forever, as they are able to raise capital in the private market without the need to go public.
Why investors are turning to the private market
The shifting dynamics have created new opportunities. Investors can access some of the largest and well-known private companies, as well as seek exposure to companies earlier in their lifecycle than is possible in the public market. Investors seeking access to large-cap private companies can find names like SpaceX and OpenAI, whose valuations would both place them within the top 25 stocks in the S&P 500 by market cap.2 For investors seeking to purchase shares of smaller companies, there is a growing opportunity set in that area as well. According to VC firm Andreesen Horowitz, today there are more than 1,000 tech “unicorns” worth over $1 billion in the private market, with a collective value of nearly $5 trillion.3
How broker-dealers help facilitate transactions
While investors may find the pre-IPO market attractive, they cannot simply buy or sell shares of private companies on a traditional online brokerage account. Unlike when purchasing a publicly listed stock or exchange-traded fund (ETF), investors cannot click a button or two to execute a trade of a private company. It is important to remember that even when trading public securities, there may be complex behind-the-scenes operations that match buyers and sellers at a specific price. Still, in highly liquid markets like publicly traded stocks, price discovery can be nearly instantaneous.
What makes private market investing different
Unlike their publicly traded counterparts, shares of private companies are traded far less frequently and often feature ROFR (right of first refusal) restrictions that generally do not apply to publicly traded securities. In addition, typically only individuals who meet the SEC’s accredited investor requirements as well as institutional investors are eligible to purchase equity in private companies. These factors make the private market less efficient than publicly traded stocks, potentially creating the possibility of pricing differences relative to the public market, though with higher risks as well.
The role of broker-dealers in private transactions
In the private market, investors often look to broker-dealers to help match potential buyers and sellers. For instance, if a startup employee has exercised their stock options and wants to sell the shares they now own, they likely will not be able to find eligible potential buyers on their own or they may not know how much to price their shares. In these circumstances, a shareholder may choose to work with a broker-dealer to help find a buyer. For performing this work, a broker-dealer may charge a commission.
Private market participants do not legally require the help of a broker-dealer, but many find that working with a broker-dealer can make the process easier to navigate, particularly in markets with low liquidity. A broker-dealer may assist private market participants by helping identify potential counterparties and facilitating transactions.
How buyers and sellers can connect on a pre-IPO marketplace
Forge has built a marketplace that matches prospective buyers of private company shares with owners of shares of private company stock, helping facilitate trades and creating liquidity. To access the marketplace of pre-IPO companies on Forge, users can create an account to get started.
Tools and data for informed private market decisions
An effective pre-IPO marketplace should empower both parties with in-depth data on pricing and other key data points, and Forge aims to support participants with tools and data designed for that purpose. Forge provides a wealth of information and tools to help facilitate private market transactions, including:
1. A live, actionable order book
Users see current bids and asks in real time, with automatic expirations to ensure the book stays fresh.
2. Contextual pricing insights
Buyers and sellers get insights into potential prices by analyzing recent trades and historical trends, as well as Forge Price™, a derived indicative price available for approximately 200 pre-IPO venture-backed late-stage companies.
3. Self-directed trading
Users can submit bids and asks, negotiate directly, and track trades end-to-end, all in one place.
In some cases, a buyer or seller can work with a marketplace specialist who can further assist in executing a transaction and offering guidance along the way from bid/ask to closing.
What distinguishes Forge from other pre-IPO marketplaces
It is important to note that not all pre-IPO marketplaces are the same. While market participants may be able to complete transactions through other broker-dealers and marketplaces, we believe Forge seeks to offer a differentiated experience for both buyers and sellers by offering industry-leading price transparency, market data, and analytics. In addition, Forge conducts in-depth proprietary research into the private market to help buyers and sellers make more informed decisions.
Private market research and insights
For instance, the quarterly Forge Investment Outlook contains in-depth data and analysis of market performance and trends, primary and secondary funding activity, and exit activity, among other topics. The monthly Private Market Update also provides timely market data and insights, providing additional information and context on performance and other trends. Forge also publishes weekly insights on startups and tracks potential IPOs, helping investors uncover potential new opportunities amid a rapidly evolving private market landscape.
Take the next step
If you’re interested in purchasing shares of a pre-IPO company, we recommend reading “How to buy private shares on Forge: A complete guide,” which offers a step-by-step overview to the process. For owners of private company shares looking to sell, we recommend reading “How to sell private shares on Forge: A complete guide,” which outlines the selling process and offers instructions on how to execute trades.
And if you are interested in exploring the private market, you can sign up for Forge today to gain access to industry-leading data including Forge Price™, trading history, real-time market opportunities and other resources.
FAQs about pre-IPO marketplace
Is it worth buying pre-IPO shares?
Buying pre-IPOs shares offers the potential for investors to gain access to non-publicly traded companies that otherwise may not be available. As many of the most innovative companies are staying private for longer, investors may find compelling opportunities in the private market.
What is a pre-IPO marketplace?
A pre-IPO marketplace connects potential buyers and sellers of private market companies in one place, helping to facilitate transactions between the parties. A pre-IPO marketplace often provides insights on trading activity and historical prices, among other data points. For conducting services and facilitating trades, in most cases a pre-IPO marketplace charges a commission to either one or both parties in a transaction.
Is pre-IPO investing risky?
Like other investments, purchasing pre-IPO shares carries both general and specific risks. Compared with publicly traded securities, shares of private companies are often far less liquid and may not be tradable until a company completes an exit. Other risks include lower pricing and valuation transparency compared with public securities, as well as the potential loss of principal, among other considerations.
How can I buy stock in a company before it goes public?
Not everyone is eligible to purchase shares of private companies. Typically, only accredited individual investors who meet SEC requirements and institutional investors with more than $5 million in assets are eligible to purchase share of companies before they complete an IPO. Potential investors can use a marketplace like Forge, which matches buyers and sellers of pre-IPO company shares, in order to complete a transaction.
How do you invest in pre-IPO?
Before looking to purchase shares of a private company, we encourage investors to conduct research and due diligence on the company using resources such as Forge data and analytics. With Forge, investors can see real-time data, as well as evaluate historical valuation, pricing, and trading activity, among other data points.
Marketplaces like Forge offer a platform to match buyers and sellers of private company shares. Individual pre-IPO stocks cannot be traded on traditional online brokerages or apps.
Can I invest in a company before an IPO?
Unlike public market transactions, there are limits on who can buy shares of private companies. In general, institutions with more than $5 million in assets and accredited individual investors can purchase shares in private companies.
Shares of private companies cannot be traded in traditional online brokerage accounts or apps.
How does private investing work?
Private investing may include asset classes such as real estate, private equity, private credit, infrastructure, and other types of so-called alternative investments beyond publicly traded stocks and bonds. Investors may be able to purchase funds or other investment products to gain access to these private assets.
For Forge, the private market refers to companies that are still privately held and not traded on a public exchange. Forge has created a marketplace to match buyers and sellers of private company stock, offering industry-leading data and intelligence to help both parties make more informed decisions.
