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Pre-IPO companies can be a tremendous investment opportunity. Compared to investing in IPOs, which let you capitalize on a company’s existing success, pre-IPOs give you the opportunity to help grow and fund up-and-coming startups and unicorns, with the potential for positive returns when they do go public.
Like any investment, pre-IPOs come with their own risks, which is why it’s essential to understand exactly how they work, what to look for before investing, and how certain strategies can help maximize your returns.
First, let’s take a hard look at what sets pre-IPO companies apart from the rest, and why you should consider investing in one.
What are pre-IPOs?
Pre-Initial Public Offerings, or pre-IPOs, are opportunities for companies to assess their ability to raise capital before they go public. These investments are often steeply discounted, and while there are possible drawbacks—you risk tying up your money for uncertain lengths of time and may only be able to sell your shares when the company goes public—it’s a reasonable tradeoff when you consider your potential profit margins.
Take companies like Amazon or Alibaba, whose IPOs raised $54 million and $25 billion, respectively. For pre-IPO investors, this spelled out significant returns as shares jumped in price. With the proper tools, research, and support, retail investors can see real returns.
How to succeed with pre-IPO investing
To increase your chances of investing in a profitable and successful pre-IPO, you’ll want to consider how past performance has helped similar organizations. HUDSONPOINT Capital has put together a Pre-IPO Checklist that covers some of steps you should take before deciding on investing in a pre-IPO opportunity.
Currently valued at $3 Trillion, Apple holds the distinction of the “Most Successful Pre-IPO Company That Went Public,” turning angel investor Mike Marrkula’s $250,000 investment in 1977 into a $203 million profit when the company went public in 1980. For reference, investing $100 in Apple at the time of its IPO would be worth $68,000 in 2019.
ByteDance, the parent company of TikTok and its Chinese counterpart Douyin, has plans to go public in 2022, thanks to its staggering generation of ad revenue. Experts credit the company’s recommendation algorithm. Called the company’s “secret sauce behind the world’s most valuable private startup,” the algorithm has been praised for successfully predicting videos and content users want to use, thus maximizing their time spent on the app.
Then there’s WhatsApp, the first mobile messaging app began in 2009. After Facebook acquired the app for $22 billion in 2014, early investors saw staggering, though perhaps none as great as Sequoia Capital, whose initial $60 million investment skyrocketed to $3 billion post-acquisition.
What do all these companies have in common? Although their performance and strategies differ, they all resulted in substantial gains that benefited early investors. Getting ahead of the game and supporting a startup can prove far more profitable than simply investing in a business’ IPO.
Let’s take a look at the biggest tech pre-IPOs in 2022
The Biggest Tech Pre-IPOs in 2022
ByteDance
As previously mentioned, Tiktok parent and digital giant ByteDance is gearing up to go public in 2022. Though the company has faced some controversy in the past and will have to undergo considerable international scrutiny on both its financial and policy fronts, its (almost) overnight success is undeniable.
From Tiktok and Douyin to news aggregation service Tautiao, ByteDance is currently valued at $180 billion, having generated $37 billion in revenue last year alone. This figure could make it one of the biggest IPOs for the coming year, and sets it above the rest for 2021.
Space X
Elon Musk’s famous aerospace company is coming to you. With a valuation of $100.3 billion, the company has remained public per Musk’s wishes, even as it continues to take the rocket manufacturing and aerospace transportation industries by storm, with plans to crew a space mission to Mars by 2024.
They logged $2 billion in launch revenue back in 2018, and although Musk is considering keeping SpaceX private in order to participate in governmental contracts in the future, this is not set in stone. Investors should take note of SpaceX, and stay prepared in case the eccentric Musk decides to take the company in a new direction.
Stripe
2021 has been a fantastic year for up-and-coming payment processor Stripe. The company secured $600 million in its latest round of funding earlier this year, raising its valuation to $95 billion amid a massive boom for e-commerce following the COVID-19 pandemic. While no date has been set, Stripe is estimated to go public either by the end of 2021 or early 2022, so interested investors should keep a watchful eye out.
If all goes well, Stripe could go public with a valuation of $100 billion, setting it up as one of the biggest IPOs in history.
Klarna
This Swedish fintech company is next on the list for hotly anticipated IPOs. Klarna’s “buy now, pay later” set-up allows customers to shop at their favorite stores for a fraction of the price, letting them pay in four easy installments with no interest or additional fees.
With a current valuation of $45.6 billion, the company announced its intent to go public within the next year or two. Klarna stands to revolutionize the way we pay for online purchases—so they’re definitely worth another look.
Canva
This popular graphic design platform is gearing up for a public launch in the near future. Canva currently boasts an impressive $40 billion valuation, and has been providing easy and accessible design templates and graphics for presentations, posters, social media posts, and other visual content for users at both free and paid levels.
Its recent $200 million private equity funding round provided Canva tremendous success during and after the COVID-19 pandemic due to the growth of remote working. The company is set to continue expanding in the near future.
Instacart
Even before COVID-19 changed the way we shop, Instacart was beginning to grow in popularity. Though originally intended as a grocery delivery service, the app has expanded to cover all areas of retail, with its model mirroring restaurant delivery apps like DoorDash.
This could spell significant success for Instacart, whose current value of $17.7 billion is expected to hit $30 billion if and when it goes public. For those looking to cash in on the booming sector, this pre-IPO is worth a look from investors.
Databricks
Databricks has quickly risen as one of the leading purveyors of database simplification and management. With more than 5,000 clients in over 19 countries and a valuation of $38 billion, the company is set to generate over $1 billion in revenue in 2022.
Databricks is making substantial strides, having sparked interest across a variety of industries. As technology evolves and AI programming becomes more popular, this could be a smart move for investors looking to board the growing data and programming train.
Revolut
Headquartered in London, Revolut is one of the fastest growing financial tech companies of the modern era. Its simple-to-use app lets users pay and get paid faster and easier than ever before. Clients can also link multiple bank accounts and cards to their Revolut account, transfer money globally with competitive exchange rates, and grow their wealth through a variety of smart investment tools.
With a valuation of $33 billion, Revolut has no set date to go public, as CEO and co-founder Nik Stroronsky wants the company to reach a yearly revenue of several billion dollars before any IPO.
Nubank
Headquartered in Brazil with offices around the world, Nubank is the largest financial technology bank in Latin America, helping users take control of their finances with ease. Valued at $30 billion, the company raised $750 million in its latest funding round in June of this year, and recently announced its plans to go public, possibly by the end of 2021.
Investors seeking to get in on the action should act fast—with over 40 million users across Brazil, Mexico, and Columbia, Nubank is currently the largest digital bank in terms of customers with a swiftly growing client base.
Epic Games
The creator of Fortnite is no stranger to success, given the video game’s continued popularity several years after its release and Epic Games’ continued to triumph in its various funding rounds.
Their most recent late-stage venture capital round accrued a $1 billion, raising their valuation to over $28 billion and marking them as one of the most valuable private companies in the world (even comparable to long-time gaming giant Electronic Arts (EA)).
While no IPO has been announced, given Epic Games’ continued growth, it’s likely this will change in the near future.
Is it time to get involved?
Pre-IPO companies aren’t just for hedge funds and big-name institutions anymore. Getting involved with a promising startup can mean big success for retail investors looking to invest in the next big thing.
If you’re interested in adding Pre-IPOs to your portfolio, or want more information on our pre-ipo checklist, please schedule a call to learn more about what we have available right now.
