An IPO (Initial Public Offering) opens the doors for a private company to being traded among the public. This commences when a private company decides to launch in the open market. To do so, private companies have to register themselves with the SEC (Securities and Exchange Commission) and have to report quarterly to meet the requirements. Usually, a company plans to go public only when they reach a valuation of about $1 billion which is referred to as a unicorn in the trading market.
IPO shares are capable of lifting a company’s finance to a significant reach. It also provides the liquidity of the stocks. This offers an exit strategy for the actual shareholders, as well as giving millions of retail investors a chance to participate in the offering.
What is a Pre-IPO?
A pre-IPO is similar to an IPO that allows investors to buy pre IPO shares of the company. However, these similarities are confined to that only. A pre-IPO takes place in a private company and not public. Private companies do not have an assurance of going public ever. The companies holding private status are not subject to SEC’s scrutiny thus providing less transparency to the investors.
The pre-IPO shares are defined in a lockup period to prevent buyers from turning around and take an early exit.
Why should the investors be attentive to pre-IPO shares investment?
Here are several reasons for investors to think twice before investing in pre-IPO shares:
-
Less reasonable
The initial public offering process calls for a lot of work. Even the organization’s head can get to work to process the IPO shares that affect the company’s benefits in different aspects. The private companies must have an investment bank that is entrusted with directing the organization as it goes through the complexities of the IPO process. These organizations charge a heavy expense.
-
No allowance to sell shares
The entrepreneurs cannot make a favorable decision for themselves. The first financial investor can pull the cash over into the organization. Irrespective of whether they take their offers, the investors will not be able to sell the shares for a long time.
-
Limited resources
Private companies are allowed to function with the strength of 50 members. These companies hold a credit lower than a public company. Therefore, the financial and managerial resources of a private company are limited.
-
Inadequate safety to the members
A private company is exempted from several benefits and provisions of the companies act. Minority members may more than the majority members. And, if investors want to cut off their shares due to dissatisfaction, they can expect a loss.
-
Investment without evaluation
The private companies do not have their shares listed on the stock exchange and there are no regular dealings in the unlisted trading to invest pre-IPO. Therefore, shareholders cannot know the real value of their investment in a private company. The unlisted shares trading have less transparency. However, Unlisted Assets has numerous unlisted shares price lists to help investors pick up the right company share for the investment.
