The Pre-IPO Startup Equity Market

by | Opinions, Research

IPO market geared up for the busiest week

In a low-yield world, is Pre-IPO investing the hidden secret to higher yields?

  • Pre-IPO secondary transactions are growing, and over past few years have consistently generated higher returns over other traditional asset classes
  • Startups are remaining private longer. The average age of technology companies going public has gone from 4 years in 1999 to 11+ years now. As a result, several broker networks and pre-IPO marketplaces have emerged to provide liquidity to early stage investors and employees
  • Our analysis shows that secondary investments in mature startups 2-3 years prior to a liquidation event have yielded between 40%-70% annualized returns with fairly high success rates. That’s not a typo!
  • Case in point – Slack went public with IPO priced at $38.5 per share, earning around 200% above the last private funding round 10 months prior to the IPO.

However, investing in Pre-IPO is no silver bullet. Just like all other forms of investing, you can go wrong and will go wrong. Imagine investing in AirBnB in 2017, or in Bytedance in Dec 2019. AirBnB’s valuation has halved since, while Bytedance has taken a nosedive.

Is Pre-IPO investing the hidden secret to higher yields? Is it a promising asset class that can consistently deliver returns for private investors looking to invest in high quality high growth unicorns headed for a liquidity event in 12-24 months? What are the key risks investors should be aware of?
We did an in-depth analysis of the past performance of this market in order to quantify potential returns, as well as look for potential pitfalls. This report provides a complete analysis and our point of view of the Pre-IPO secondary market, its intricacies and future prospects.

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