Initial Public Offerings (IPO) offer a wide range of opportunities for the investor. However, before you invest in either a pre-IPO or IPO, it’s important to know the difference between them.

IPO and Pre-IPO may sound similar, but they are not the same – in fact, they’re vastly different business models and investment opportunities. For the investor personally, it is important to choose the right point of entry when buying shares.

So, to arm yourself with the right information, read on for our cheat sheet on the difference between IPO and Pre-IPO.

What is an IPO?

An initial public offering (IPO) or “float” is the process where a private company goes public by the sale of its stocks on the share market. In essence, the sale of its shares occurs in the public domain.

By going public, they are now subject to market forces, and anyone can invest in them. Their valuation now changes in relation to the stock market.

It is a long road to IPO. An IPO company must register with the SEC and undergo quarterly reporting requirements. Companies typically go IPO only after they’ve reached a valuation of around $1 billion, so it is fair to say that they have ironed out the majority of their growing pains and are relatively stable.

An IPO enables a company to achieve considerable growth more quickly, by giving them access to capital, which can be used in a variety of ways including the purchasing of other companies, greater exposure, and attracting and procuring better hires at all levels of the company.

What is Pre-IPO?

A pre-initial public offering or Pre-IPO is when investors are given the opportunity to buy shares in a company while it is still private. These are much younger companies, and as a result, investments of this kind are also called “seed capital” or “co-investment” opportunities. You are investing in a company’s growth, with the hope that they go public one day in the future.

It goes without saying that when dealing with a much younger company, you are also accepting a higher level of risk. However, investors may judge that the risk is off-set by the discounted price of the shares and the company’s overall potential.

Due to the private status of Pre-IPO, they are not registered, nor do they undergo the same degree of scrutiny of a public company. There’s less transparency, so your investment is heavily reliant on your own information gathering, and that of your broker.

The takeaway? Opt for a Pre-IPO or seed capital broker who knows business. Knowing whether or not an invention, service, or product is likely to be successful is best judged by brokers with business experience themselves.

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Chris Cutout

Chris Dixon

Fund manager

cd@think10capital.com

Chris Dixon is a Think10 Capital’s Digital Fund Manager with specific responsibilities of managing digital funds and driving strategic growth. Dixon brings his experiences in capital and investment management through prior involvement in private equity and institutional investment in the United States. Over the past decade Dixon has lived and worked in Melbourne, Australia where he now resides.