Traditionally, it has been difficult for individual investors to buy into initial public offerings (IPOs), and nearly impossible to own equity in a pre-IPO company. While this trend has started to shift in recent years, work still needs to be done to ensure more equitable access to these types of investment opportunities are available.
Pre-IPO funds are funds that invest in late-stage companies looking to go public in the near future. These funds typically invest in private companies that have already raised capital from private investors and have a proven business model with strong fundamentals. On average, the time period from the time of investment to the IPO is between three to five years.
Benefits of a Pre-IPO Investment
Retail investors typically do not have direct access to investments in privately held companies. This is partially due to the challenges of managing a plethora of small-sized retail investors. This is where pre-IPO funds can play a role.
Pre-IPO funds allow HNIs and family offices to invest in a pool of privately-held and fast-growing companies that are looking to go public within the next three to five years. They also have a distinct advantage over individual investors wherein they are not subject to mandatory lock-in of share sales. These investors can liquidate their holdings as soon as the company goes public, thereby reducing the time to usually required realize their capital gains.
Access to Pre-IPO Funds
Pre-IPO funds are a relatively new asset class. These funds are generally launched by venture capital funds, private equity funds and asset management companies.
How can you invest in Pre-IPO funds?
- Approach your financial advisor or expert to understand the various pre-IPO funds run by different institutions. Typically, you can only invest during a particular time period when the fund is recently launched and is looking to generate capital from investors.
- Go through the investment strategy and targets of the various alternatives communicated to you by your financial advisor. Generally, a fund will have a prospectus available with all the necessary details on what they plan to do with your money.
Some factors that you should keep in mind while choosing a fund to invest in include:
- Target returns
- Focus of investment by the fund (sector focus, company focus, market focus, etc.)
- Credentials of the fund managers
- Holding period (the period after which you will get your money back)
- Historical returns of the fund; previous successful exits
Once you decide on the fund to invest in, you should set up a call with the fund representative/financial advisor and ask them for the necessary steps to initiate the investment. There will most likely be an application process and other legalities that you would have to complete before you can complete your investment. Once you become an investor in the fund, regularly track the activities of your investment and seek updates from your fund representative. Tracking the investment and being up-to-date on emerging developments is as important as making the initial investment.
Promising Anticipated IPOs to Follow in 2022:
At a valuation of $95 billion, Stripe is the most eagerly-awaited IPO at the moment. Citing anonymous sources, the Wall Street Journal said the company reported around $7.4 billion in revenue for 2020. The company grew quietly but quickly, processing hundreds of billions of dollars for millions of businesses worldwide by the end of 2019. Stripe now counts heavyweights, including Amazon, among its customers.
The rise of e-commerce is a secular trend, so the performance was not surprising. However, the pandemic made online shopping even more popular, and several companies such as Stripe benefited massively as a result. The company’s investments in artificial intelligence (AI) and machine-learning models helped them take on new businesses with ease.
At the moment, there is no firm date for an IPO, but it is expected we will see its debut in 2022.
With the rise of data in business, many companies are jumping on board by making use of AI and visualization tool services. Databricks has become an industry leader by providing sophisticated services that help companies manage databases, implement AI and visualize data.
The company recently held a fundraising round that attracted $1.6 billion for a $38 billion valuation. Those funds were added to the $1 billion the company raised in February. Databricks is another company expected to go public sometime this year.
Discord is a chat app that is extremely popular with gamers, sporting more than 150 million active monthly users worldwide. Members can communicate in real-time via voice calls or video chats, share media files and talk to others on their server. The company is flush with cash, and its most recent funding round gives them enough to look into the markets at its leisure. It raised $500 million in September 2021, giving it a valuation of $15 billion. Analysts are expecting a public debut sometime in 2022.
This growing player is a company specializing in technology and analytics to discover hidden insights from large volumes of data. Despite the company’s recent financials being unavailable for investors, its most recent publicly-reported fundraising bid saw its valuation grow to $4.2 billion, with a record 108% YoY revenue growth.
Cloud products now represent half of its annual recurring revenue. ThoughtSpot’s cloud services have seen 250% growth in one year, and 85% of new customers purchased these products during those 12 months.
Impossible Foods replaces meat products with plant-based alternatives. The goal is to give people the taste and nutritional benefits without any negative health or environmental impacts. These plant-based wonders have been proven by scientists, chefs and dieticians across the globe to have some health benefits while helping minimize the environmental impact brought on by the meat and cattle industry.
A recent Bloomberg article, citing anonymous sources, said the plant-based meat producer is eyeing a capital raise of $500 million to give it a market cap of $7 billion.
InstaCart has made it possible to order groceries online and have them delivered when and where you want. Its latest funding round puts the online grocer’s valuation at $39 billion. In 2020, Americans stayed home in greater numbers than they had for decades, which helped increase the demand for delivered groceries. In this environment, InstaCart thrived.
Another entry on this list of IPOs to track is Rivian. Long the subject of IPO rumors, Amazon-backed electric pickup truck company Rivian is finally making its public debut official. The startup has applied to trade on the Nasdaq exchange as RIVN. Rivian Automotive recently increased the expected offer price in hopes of getting a valuation of $65 billion, according to the IPO documents.
Last on the list of furture IPOs to track is Konzortia Capital, a U.S.-based fintech company whose mission is to create a financial ecosystem that puts the user first by offering a full suite of products spanning equity crowdfunding, corporate and retail banking, and asset management. Through the use of a distributed ledger network, users from all over the world will be able to take advantage of these product offerings- ultimately redefining the way individuals and entities interact with the financial environment.
As we know, the digital shift has accompanied record levels of investment- including in venture capital, digital assets, payments and asset management. By the end of the third quarter of 2021, global fintech funding reached $94.7 billion. The ability to scale globally and the need for the products and services that target actors across the spectrum makes Konzortia a strong contender to diversify your portfolio with. With a growing team, ambitious valuation models, and complex financials, this emerging company is set to make waves in 2022.