From Private To Public: The Return Of Pre-IPO Investing
Anton Alikov, CEO and Founder, Arctic Ventures.
Pre-IPO investing refers to purchasing shares of a private company and keeping them, usually for one to two years, before the company goes public. Usually, the upside of this strategy consists of removing the illiquidity discount. When shares begin to be traded on the stock exchange, many transactions unlock the true value of business.
In addition, investors can participate in the “normal” growth of an equity value of the new company. There is also another motivation for doing pre-IPO. This investment strategy used to be available mainly to large institutional investors, but in recent years it has expanded significantly due to the democratization of private markets. Specialized funds and alternative investment platforms now provide an opportunity to participate in this strategy for a much wider range of investors.
The 2022-2023 period saw IPO markets freeze. But since the beginning of 2025, the situation has begun to change. According to the StockAnalysis website, the number of listings has nearly doubled in the first half of 2025 compared to 2024.
According to Reuters, U.S. companies managed to raise about $25 billion during this period, which is significantly higher than $18 billion raised in the same period last year. The SPAC sector has also become more active. The pre-IPO investment strategy is rapidly gaining popularity again.
Current Trends
What are the current trends in this market? What should an investor keep in mind? Here are the most interesting observations, in my opinion.
Firstly, I’ve noticed a growing demand for late-stage unicorn stocks in certain industries for a long time. Many investors are focused on finding fast-growing late-stage startups (C+ series) in the fields of AI, fintech, spacetech as well as biotech. These industries currently host numerous strong contenders poised for IPOs.
The rationale behind this investor focus is clear: Privately held companies are bought and sold at a significant discount compared to their public analogues, but this gap is likely temporary, and I expect it to disappear rapidly once these startups enter the public market.
Secondly, the secondary market for private shares has been actively developing for several years. This process has been made possible due to technological innovations and regulatory changes.
Several investment platforms allow accredited investors to buy and sell private equities of startups, and this fact is actively used by startup employees and early investors of private companies to gain access to market liquidity when IPO markets have been frozen for a long period. Such platforms work as exchanges. I’ve noticed collective investments via special purpose vehicle (SPV) companies to combine funds from small investors and purchase shares ahead of an IPO are also gaining traction. Direct investing in this segment is still difficult, but it often happens through personal connections.
Thirdly, investors now have a very wide range of companies to invest in. Companies remain in private status for a longer period (the average for 2024 was 10.7 years compared to 6.9 years in 2014). Over the years of the venture winter, I’ve found this process has only intensified. As a result, there are now many strong candidates in the economy. A long period of private status gives the company more time and opportunities to prepare high-quality accommodation. As a result, investors now have lots of good options for building an attractive portfolio.
Fourthly, it is worth mentioning favorable macroeconomics. The M2 money supply has reached new records, a recession has not occurred since 2020 and the markets have shown amazing resilience to external shocks. Sooner or later, I believe low interest rates will force large capital to look for new application points, and risky assets and strategies are already well-positioned to accept new waves of capital.
The Risks
It’s important to note that pre-IPO investing remains a risky strategy, typically suited for seasoned investors. Purchasing private shares in an illiquid market ties up capital while offering limited transparency.
Key risks include inflated valuations of trendy startups, the inability to hedge positions effectively and insufficient financial disclosures from private companies. Additionally, lock-up periods restrict investors from selling shares immediately after an IPO, and sudden sell-offs by major insiders could trigger sharp price declines.
Investing Carefully
But at the same time, a well-planned approach allows investors to hope for high profitability. Pre-IPO investments can yield significant valuation uplifts, depending on the company, sector, timing, etc.
Among contributing factors are an early access to large blocks of shares at a lower price than IPO participants will have; access to fast-growing sectors and companies even before they become widely available to public investors; finally, there is an opportunity to play on the dynamics of the market, because the high results of recent IPOs are often encouraging more and more companies to do an IPO, creating a domino effect.
Given the above trends, I expect the U.S. IPO market to remain dynamic for a long time. Pre-IPO investing may offer attractive opportunities for investors who want to get to know the market leaders of tomorrow before others.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
Forbes Business Council is the foremost growth and networking organization for business owners and leaders. Do I qualify?