Everyone wants to find a way to invest and make money for themselves. What stops the average person from doing so is the lack of confidence and knowledge. Thankfully, there are plenty of financial guides and experts to help people along.
One investment option is known as Pre-IPO stocks. Pre-IPOs are shares that a private company has made available to investors – all before the company officially goes public. Hence the “pre” part of that term.
How Pre-IPO Stocks Work
As mentioned above, Pre-IPOs are made available before a company goes public. Typically, one will see hedge funds and private equity firms investing in Pre-IPOs, but there is nothing stopping retail and other investors from joining in.
When a company sells Pre-IPO stocks, it is likely to raise additional funds before going public. Unlike publicly traded stocks, Pre-IPOs are not subject to market-related fluctuations. In a sense, this makes them more stable.
Terminology
When looking to invest, it is critical to understand the basic terminology surrounding IPOs and Pre-IPOs. IPO stands for initial public offering. Many people confuse IPOs and Pre-IPOs when they are not interchangeable. IPO investing occurs when a company goes public, whereas Pre-IPO occurs before that moment.
Why Early Investment Works
People may be wondering – why is there a need for Pre-IPO investing when IPOs will be available immediately following a company going public? The simple answer is that in the world of investing, earlier is better.
Investors that take the initiative to invest early on are facing higher risk, but they also have more to gain in the process. If their investment works out, they will see a higher return than if they had invested later in the process.
Additionally, many companies are opting to stay private for more extended periods of time. This complicates the process quite a bit. It also makes it harder for investors to buy in, as the window for doing so is typically much smaller. This explains the rising popularity of Pre-IPO stocks, as many see them as the only viable way of supporting specific companies. This is especially true for tech companies, as they are predicted to rise due to increasing demand.
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