Pre-IPO investing explained

Dan ChaparianVice President, Product Marketing, Forge

When it comes to investing, you might think of the stock market and buying shares of publicly traded companies, like Apple, or Microsoft. But what if you could invest in startups before they become well known and publicly traded? That's where pre-IPO investing comes in. Once a company has an initial public offering, or IPO, anyone can buy or sell that company's stock. But before that happens, it can be challenging for individual investors to obtain shares. Venture capital funds might invest in private companies and employees might receive stock options at pre-IPO companies.

But the general public usually doesn't have access to these private investments. However, there are ways to invest in pre-IPO companies via private secondary markets, like Forge. If you already own pre-IPO stock, or if you want to invest early, you might be able to trade through a secondary marketplace. But who can engage in pre-IPO investing? Well, typically, you either need to own pre-IPO stock that you can sell or be an accredited investor to buy private stock.

An accredited investor is someone who meets certain criteria, such as having a net worth of at least $1 million, or an income exceeding $200,000 for the past two years. Pre IPO investing can offer individuals the chance to get in early and potentially gain outsized returns. But it can also carry more risk, as there is no guarantee that a company will go public or experience long-term gains. Plus, there's generally less price transparency in private markets.

Nonetheless, making private investments could potentially be a way to diversify your portfolio and manage risk. So, if you're looking for new investment opportunities, pre-IPO investing might be worth exploring.

About the Author

Dan Chaparian is VP of Product Marketing at Forge Global. Prior to joining Forge, Dan was VP, Global Product Marketing for BlackRock's iShares ETF business. He previously held positions at Apple and Uber and is a former startup founder. Read more from Dan.

Please Read These Important Legal Notices & Disclosures

The information and material presented in this article is provided for your informational purposes only and does not constitute an offer by Forge Global, Inc., Forge Securities LLC or any of its affiliates (collectively, "Forge") to sell, or a solicitation of an offer to buy any securities and may not be used or relied upon in connection with any offer or sale of securities. An offer or solicitation can be made only through the delivery of final offering document(s) and purchase agreement and will be subject to the terms and conditions and risks delivered in such documents.

To the extent information about or defining specific terms is provided herein, Forge makes no representations as to its accuracy and has no duty to update such information. Such information is based on Forge’s experience and the meanings and connotations of terms as Forge typically uses and interprets them. Others may construe such terms differently, and you should do your own research and consult with financial, legal and tax professionals regarding any such concepts included herein.

This article does not constitute an offer to provide investment advice or service. Registered representatives of Forge Securities LLC do not (1) advise any member on the merits or prudence of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services. Securities referenced in this article may be offered by Forge Securities LLC, member FINRA/SIPC.

Forge Securities LLC is a wholly owned subsidiary of Forge Global, Inc. Certain affiliates may act as principals in such transactions. Forge Data LLC is an affiliate of Forge Global, Inc. and Forge Securities LLC.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative, involving a high degree of risk, and investors should be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and investors should conduct their own, independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or investment advice. Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment. Past performance Is not indicative of future results.