Finder makes money from featured partners, but editorial opinions are our own. Advertiser Disclosure

Investing in pre-IPO stocks

Exponential returns are possible if you get in before the next hot public offering, but uncertainties and a possible lock-up period add risk.

Investing in a pre-IPO stock isn’t as straightforward as purchasing publicly traded shares. But there are several ways for investors to back startups before they reach the market regardless of their accreditation status, including crowdfunding platforms and pre-IPO brokers.

What is a pre-IPO stock?

Pre-IPO stock is a stock available for purchase before the issuing company goes public in an initial public offering. Also called a pre-IPO placement, this private sale of shares occurs before a company’s official market debut.

This type of pre-IPO investing offers companies the opportunity to raise funds and offset some of the risks associated with the offering. After all, there’s no guarantee a freshly issued stock will do well with the general public, so pre-IPO placements can help counteract the risks of taking a stock public for the first time.

Why should I invest in private companies?

Private investors who invest in a pre-IPO placement get to purchase stock ahead of its official release to the public — typically at a discount. Pre-IPO investors face the same risks as the company issuing the stock, namely that there’s no guarantee the company will do well at market. To reward investors for taking a gamble on pre-IPO stock, many companies offer their pre-IPO placements at a discount.

Beyond the discount, pre-IPO investors have the opportunity to back a company before it’s public and profit from the launch of its stock. These stocks are also better insulated from broad, market-impacting events, which means they tend to be less volatile than those available to the general public.

How the JOBS Act made it easier to invest in pre-IPOs

In 2012, President Barack Obama signed into law the Jumpstart Our Business Startups Act (JOBS Act). The legislation makes it easier for startups to raise capital by loosening Securities and Exchange Commission (SEC) regulations that govern initial public offerings.

The JOBS Act effectively increased the number of shareholders permitted to invest in a company before it must register its stock with the SEC to 2,000. It also opened up pre-IPO investing to up to 500 non-accredited investors, making pre-IPO placements more accessible to retail investors.

What are the risks of investing in private companies?

What should I look for when choosing a pre-IPO investment?
Reduced volatility and potentially exponential returns make pre-IPO companies an attractive investment opportunity. But before you allocate funds, consider the following:

  • Time in business. How long has the company been in business? Review its company history and any available data on its balance sheet to get a more accurate picture of its financials. The younger the company, the bigger the risk.
  • Lock-up period. Find out if the pre-IPO placement you’re interested in plans to impose an investor lock-up period. If so, consider how the stock may perform over the length of time you’d have to hold on to it, and whether you’re willing to weather its trajectory.
  • Diversification. It may be tempting to hop on the bandwagon of the hottest tech startup, but consider whether the company in question will help or hinder your portfolio diversification strategy.

How to invest in a pre-IPO company

Investing in a pre-IPO company isn’t as straightforward as buying publicly traded shares. That said, there are a few avenues of opportunity available to those interested in pre-IPO stock:

  • Crowdfunding platforms. Invest through platforms that offer pre-IPO stocks, like OurCrowd, SharesPost or EquityZen.
  • Indirect exposure. It’s common practice for companies to invest in companies, so if you can’t back a stock directly, consider investing in a publicly-traded company that participates in private fundraising.
  • Pre-IPO placement brokers. Some banks, lending institutions and investment brokers specialize in pre-IPO placements, so you may be able to access pre-IPO stock through a third party.
  • Become an angel investor. While it’s not a viable option for everyone, becoming an angel investor is one way to back private companies. Angel investors are permitted to participate in pre-IPO placements, so if you already qualify as an accredited investor, consider becoming a full-fledged angel investor and joining a syndicated angel list.

Compare platforms to buy stocks

Name Product Asset types Option trade fee Annual fee Signup bonus
M1 Finance
Free 1-year trial of M1 Plus
when you sign up for M1 Finance
Invest in your favorite stocks or in curated portfolios with automatic rebalancing.
SoFi Invest
Stocks, ETFs, Cryptocurrency
Get one free stock worth up to $1,000
Open an account
A free way to invest in most equities.
Stocks, Bonds, Options, Mutual funds, ETFs, Cryptocurrency
$0 + $0.50/contract
$0 per month
$10 of crypto
Open an account with access to crypto
A platform built for all kinds of traders and all styles of trading
Stocks, Options, ETFs, Cryptocurrency
Free stock (chosen randomly with a value anywhere between $2.50 and $200)
Sign up using the "go to site" link
Make unlimited commission-free trades in stocks, funds, and options with Robinhood Financial.
Stash Invest
Stocks, ETFs
$1 per month
Add at least $5 to your Invest account
Stash is more than an investment app. You’ll have access to tools that can help you become a confident investor.
Stocks, ETFs, Cryptocurrency
$0 per month
Download and sign up with; approved accounts receive a free stock slice worth up to $300, selected from 9 popular stocks.
Open an account
Commission-free trading in stocks and ETFs with a social networking twist.

Compare up to 4 providers

*Signup bonus information updated weekly.

Disclaimer: The value of any investment can go up or down depending on news, trends and market conditions. We are not investment advisers, so do your own due diligence to understand the risks before you invest.

Our expert take

Pre-IPO companies present a potentially lucrative investment opportunity — but a lack of financial data may make it difficult to accurately gauge the risks. Before you buy in, review your platform options across multiple brokers to find the account best suited to your investment goals.

Frequently asked questions

More guides on Finder

Ask an Expert

You are about to post a question on

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked provides guides and information on a range of products and services. Because our content is not financial advice, we suggest talking with a professional before you make any decision.

By submitting your comment or question, you agree to our Privacy and Cookies Policy and Terms of Use.

Questions and responses on are not provided, paid for or otherwise endorsed by any bank or brand. These banks and brands are not responsible for ensuring that comments are answered or accurate.
Go to site