What Is a Pre-IPO Placement?
A pre-IPO placement is a private sale that takes place prior to a publicly traded company issuing its initial public offering (IPO). This type of transaction occurs when a privately held company wants to sell a large block of shares to investors looking to participate in the growth of the company. In a typical scenario, a company sells shares to institutional investors such as mutual funds, pension funds, venture capital companies, etc., who want exposure to the market without having to go through the rigmarole of filing paperwork with the Securities Exchange Commission (SEC).
The buyers in a pre-public offering (pre-IPO) placement are often private equity firms, hedge fund managers, and other institutions willing and able to invest in the firm. These types of investor groups are typically interested in buying large amounts of shares because it gives them greater control over the company. They are also less concerned about the price per share because they know that once the IPO happens, the price will likely increase dramatically.
Pre-IPO Speculation
The Securities and Exchange Commission says there are three types of pre-IPO investments:
- Private Placements
- Pre-IPO Stock Sales
- Pre-IPO Research Reports
Private Placement – These involve companies issuing stock to individuals without registering the offering with the SEC.
Pre-IPO Stock Sale – This refers to situations where a company sells a portion of its outstanding stock to investors prior to going public.
Pre-IPo Research Report – A company may issue a research report about itself prior to an IPO.
Market Opportunity
The number of pre-IPOs, venture-backed unicorn companies with valuations over $100M, have been increasing at an astonishing pace over the last decade, according to data compiled by CB Insights. In fact, since 2011, the number of pre-IPo companies has grown at a compound annual growth rate (CAGR) of 14.6%, outpacing even the NASDAQ Composite Index.
In addition, the number of unicorns with a valuation over $1 billion has grown at a CAGR of 13.7% over the same period. As of November 2020, there are 496 such companies, up from just 40 in 2010. By comparison, there are approximately 2k companies trading on the Nasdaq or New York Stock Exchange with valuations over $10 billion.
If all the unicorns were hypothetically to go public at once, the number would grow by approximately 25%. However, this would still be less than half of what it was in 2000, when there were 725 unicorns worth more than $1 billion.
Meanwhile, the median age of tech companies going public has risen to about 12 years (average 2017-2019), compared to 4 years in 2001. In addition, the average time to IPO has increased to almost 5 years, compared to 3 years in 2009. These factors have contributed to the increased interest in alternative liquidity options.
Top Upcoming IPOs
Below are some of the top noted upcoming IPOs. This article on How to invest in IPOs may be an important resource to help you get started.
Stripe IPO
Stripe is now worth almost $100 billion. And it just got even bigger. On Wednesday, the payments startup announced plans to go public, raising about $650 million at a post-money valuation of around $94 billion. The company expects to trade under the ticker symbol “STRP.”
The company had already raised nearly $500 million in venture capital in 2017 and 2018. But those funds were used to grow quickly rather than pay out dividends. So, the latest round brings Stripe’s total funding to $1.2 billion.
In recent months, Stripe has expanded beyond its core offering of online payment processing. In February, it launched a marketplace called Marketplace that lets merchants sell goods directly to customers. Last month, it introduced support for Apple Pay Cash, letting businesses accept cash payments via iPhone.
Chime IPO
Valuation:$40 billionEIPO ETA:Early 2022The growth of e-commerceDuring Covid wasn’t limitedTo traditional shopping outletsOnline bank ChimeHired Goldman Sachs To Lead Its IPOReports Suggest Chime Is Aiming For A Valuation Of Nearly $40 BillionThat Said Banking Is A Tough Racket With PlentyOf Established PlayersIn The Low Rate Environment That’s PrevailedSince The Great Recession
Databricks IPO
Valuation: $38 Billion
IPO ETA: Mid 2022
Big Data Has Become A Big Obsession Of Companies Operating In Every Industry
Databricks Has Become A Leading Purveyor Of Tools Designed To Simplify Database Management, Implement Artificial Intelligence And Even Just Do Great Data Visualization.
The Company Claims To Have More Than 5,000 Clients In 19 Countries And Says It Is On Track To Generate Over $1 Billion Plus Revenue By 2022 Up More Than 75 Percent Year Over Year.
In Summary
Buying Pre-IPO Stock Is Risky – But Not Impossible
The IPO market is one of the most exciting times for investors. Companies go public, offering shares to the general public for the very first time. This is a great opportunity for anyone looking to invest in a company, especially those who want exposure to private companies without having to wait for them to grow into public companies. However, buying IPOs involves risk, and many people avoid them because of this.
