Investing Lesson: Should You Invest in Pre-IPO Stocks?

Investing in the stock market is an excellent way to diversify your portfolio and grow your wealth productively. However, in most cases, people are buying and selling publicly traded stocks. But what about all the companies aren’t publicly traded yet? Many people wonder what, if any, the benefits are of getting in on the ground floor of a privately traded company. Is it safe to invest in a business before their IPO? What kinds of risks are you taking, and what kind of rewards could you potentially reap if the IPO is successful?

Investing in Startups

For individuals looking to invest in promising startups, there are several platforms available to you to take the guesswork out of things. Startup Stock Exchange is a platform where investors can purchase stocks with promising startup companies, and startup companies can use those stock purchases to fund their new business venture. If you’re looking to specifically invest in tech-related startup companies before their IPO, Equidate may be a good option for you as they only work with tech startups with a proven track record of success. Options like these allow investors to safely and securely invest in startups before their IPO – which is an option that many investors are looking for, especially in today’s age of the highly successful tech startups around the world.

Why invest in startup companies?

Despite the somewhat little known nature of investing in pre-IPO stocks, it will ease investors’ minds to know that there are quite a few regulations in place monitoring the trade market. For example, regulators regularly look out for advisors claiming to raise money for pre-IPO investments who never actually invest in the company they’ve selected – thus trapping investors in a scam. These regulations are becoming increasingly common and more carefully monitored as the popularity of private stock trade is on the rise.

It’s also interesting to note that that private stocks, or pre-IPO stocks, are often incredibly expensive. This is because they’re highly sought after, and in many cases you must know someone in the market to be able to access them at all. Companies like Startup Stock Exchange and Equidate make pre-IPO stock purchasing more accessible to the every-man, but it should still be remembered that finding pre-IPO stocks without the assistance of a platform or a market expert can be difficult, no matter how motivated the investor.

However, the most important reason that individuals should consider investing in pre-IPO stocks is the return on investment potential. In many cases, investors who have purchased pre-IPO stocks make double or triple what investors who purchase those same stocks publicly post-IPO. Why is this? It’s because when an investor gets in on the ground floor, they have much more to gain when a company releases their financial information, goes public, and proves themselves to be successful.

What are the risks?

In any situation where the potential reward yield is very high there is also a great risk associated with the investment. For starters, it is incredibly difficult to invest on anything more than an educated guess. Private companies keep the vast majority of their financial information incredibly private, and in many cases, nobody truly knows how successful or unsuccessful they currently are. Having no confirmed information on a company’s track record can make investing wisely difficult.

Additionally, there are many scammers out there looking to “invest” an investor’s money in a pre-IPO startup, when they’re just taking the money for themselves. These scam artists can be incredibly convincing, and it’s difficult for an investor who is new to the pre-IPO market to spot them. Despite increased regulations in the pre-IPO market, it’s impossible for the government to catch and contain these groups or individuals.

What are the obstacles for an international investor when trying to invest in the American stock market?

Tech is a globally unifying force, and the interest in investing in pre-IPO tech startups certainly isn’t contained in America. International investors face a variety of challenges, specifically knowing how different gains taxes apply to their investments. A general rule of thumb is to expect to pay a 30% taxation on any U.S. stocks you’ve purchased. However, in some cases, that percentage may vary. The easiest way for an international investor to engage with the U.S. stock market without risking making mistakes is to trade through a U.S. stock broker.

If you’re specifically interested in trading pre-IPO stocks, finding a broker who specializes in tech startups and pre-IPO stock exchange is likely an option that will help you avoid any tax complications while still engaging in the red-hot market of startup stock exchange. Pre-IPO stock exchange can be very risky, but the incredible rewards you could reap are often worth the risk you take when investing in a company whose financials are hidden from the public. Investing responsibly by doing your research ahead of time and talking to an advisor who is versed in the field of pre-IPO stocks is the best way to cement your successful investment.