5 Reasons why pre-IPO investments make sense

As late-stage investing becomes the norm for Venture Capital and Angel investors we analyze the benefits of tapping into secondary market opportunities before they undergo an IPO.

The average time for a technology company to go from a founding event to trading on the public floors has tripled since the dot com bubble burst in the early 2000s. Traditional technology investors such as Venture Capital firms and Angel investors have adapted to the new landscape by increasing the size, and frequency of late-stage funding rounds, thus expanding their portfolio companies’ life in private form.

Access to investment opportunities in such privately held companies has remained elusive for otherwise sophisticated investors which traditionally would have taken equity positions in these corporations were they to trade in public stock markets.

This newly created access asymmetry has prevented wealth management organizations such as Family and Multi-Family Offices, High Net Worth individuals, Private Banks, etc. from incorporating these assets classes to their diversified portfolios until recently.

Here are five reasons why it makes sense to add late-stage, pre-IPO positions to your portfolio:

1. Pre IPO companies can deliver extremely high returns

In the last 10 years, and after the calamitous dot-com bubble burst of the early 2000s, there has been a draught of high-flying companies deciding to undergo a public offering. That has recently changed. 2019 has marked an inflection point in this trajectory with multiple noteworthy IPOs the likes of Lyft, Uber, Cloudflare, Pinterest, Beyond Meat, Slack, PagerDuty, Zoom, Crowdstrike, and more.

The average return on investment of the major indexes in the US stock markets has been trailing behind that of the newly appointed public companies. The Renaissance IPO ETF fund, specialized in IPO investing, outperformed the S&P 500 by almost twenty percentual points by the end of July 2019.

 

Source: Renaissance Capital

2. Late-stage investing increases velocity of returns with shorter holding times

Investing in Growth Equity positions at late-stage companies with a clear path to becoming public reduces the risk of early-stage investing, decreasing illiquidity periods. Some of the most recent IPOs have delivered outstanding returns in extremely short time windows between their last private round of funding and their liquidity event when going public. Here are some interesting examples of that dynamic:

  1. Zoom: last round of funding was valued at $1B ($115 million Series D closed in 2017); current market cap = ~$18B.
  2. Beyond Meat: valued at $1.35B as a private company in late 2018; currently trading at a $6B+ market cap.
  3. Pinterest: valuation of $12B at last round of funding; current market cap = $14.5B.

3. Investing in proven companies with a path to profitability de-risks positions

Current market dynamics, a flourishing Venture Capital ecosystem, and access to cost-effective capital driven by low interest rates have incentivized companies to stay private longer. Traditional indicators of IPO likelihood have been disregarded, in part, because of VC/PE appetite and generous valuations. However, some of these privately held companies were more than ready to deal with the public scrutiny of the stock markets in terms of revenue trajectories, internal efficiencies, and profitable operations. Others had prioritized aggressive growth targets over a clear path to profitability banking on the so-called future bet.

It is the former group that has proven a more successful track record when going public with Wall Street rewarding their ability to solidify their ability to generate profits.

4. Airbnb, Robinhood, and other big private companies are likely candidates to IPO soon

Some of the world’s most recognized brands are still privately held corporations. Their Initial Public Offerings are amongst some of the most anticipated financial events of the coming year. In some cases, access to these companies’ stocks has been limited to a small number of players in the exclusive VC community. However, recent players, like Invertidos, are providing sophisticated investors with the ability to get in on these opportunities before they are available in the public markets in what is known as the secondary market.

5. Secondary market platforms are making it easier than ever to invest in pre-IPO companies

Companies like Invertidos are bringing access and liquidity to both new investors and early employees and investors who are seeking opportunities in privately-held organizations. This once inaccessible market has turned into a pretty efficient one, with additional visbility and transparency of its inner workings.

If you would like to learn more about how you too can get in early and enjoy extraordinary returns with the next cohort of technology companies before they go public, please drops us a note and we will be more than happy to walk you through the process and the different opportunities we have available.

5 Reasons why pre-IPO investments make sense

As late-stage investing becomes the norm for Venture Capital and Angel investors we analyze the benefits of tapping into secondary market opportunities before they undergo an IPO.

The average time for a technology company to go from a founding event to trading on the public floors has tripled since the dot com bubble burst in the early 2000s. Traditional technology investors such as Venture Capital firms and Angel investors have adapted to the new landscape by increasing the size, and frequency of late-stage funding rounds, thus expanding their portfolio companies’ life in private form.

Access to investment opportunities in such privately held companies has remained elusive for otherwise sophisticated investors which traditionally would have taken equity positions in these corporations were they to trade in public stock markets.

This newly created access asymmetry has prevented wealth management organizations such as Family and Multi-Family Offices, High Net Worth individuals, Private Banks, etc. from incorporating these assets classes to their diversified portfolios until recently.

Here are five reasons why it makes sense to add late-stage, pre-IPO positions to your portfolio:

1. Pre IPO companies can deliver extremely high returns

In the last 10 years, and after the calamitous dot-com bubble burst of the early 2000s, there has been a draught of high-flying companies deciding to undergo a public offering. That has recently changed. 2019 has marked an inflection point in this trajectory with multiple noteworthy IPOs the likes of Lyft, Uber, Cloudflare, Pinterest, Beyond Meat, Slack, PagerDuty, Zoom, Crowdstrike, and more.

The average return on investment of the major indexes in the US stock markets has been trailing behind that of the newly appointed public companies. The Renaissance IPO ETF fund, specialized in IPO investing, outperformed the S&P 500 by almost twenty percentual points by the end of July 2019.

 

Source: Renaissance Capital

2. Late-stage investing increases velocity of returns with shorter holding times

Investing in Growth Equity positions at late-stage companies with a clear path to becoming public reduces the risk of early-stage investing, decreasing illiquidity periods. Some of the most recent IPOs have delivered outstanding returns in extremely short time windows between their last private round of funding and their liquidity event when going public. Here are some interesting examples of that dynamic:

  1. Zoom: last round of funding was valued at $1B ($115 million Series D closed in 2017); current market cap = ~$18B.
  2. Beyond Meat: valued at $1.35B as a private company in late 2018; currently trading at a $6B+ market cap.
  3. Pinterest: valuation of $12B at last round of funding; current market cap = $14.5B.

3. Investing in proven companies with a path to profitability de-risks positions

Current market dynamics, a flourishing Venture Capital ecosystem, and access to cost-effective capital driven by low interest rates have incentivized companies to stay private longer. Traditional indicators of IPO likelihood have been disregarded, in part, because of VC/PE appetite and generous valuations. However, some of these privately held companies were more than ready to deal with the public scrutiny of the stock markets in terms of revenue trajectories, internal efficiencies, and profitable operations. Others had prioritized aggressive growth targets over a clear path to profitability banking on the so-called future bet.

It is the former group that has proven a more successful track record when going public with Wall Street rewarding their ability to solidify their ability to generate profits.

4. Airbnb, Robinhood, and other big private companies are likely candidates to IPO soon

Some of the world’s most recognized brands are still privately held corporations. Their Initial Public Offerings are amongst some of the most anticipated financial events of the coming year. In some cases, access to these companies’ stocks has been limited to a small number of players in the exclusive VC community. However, recent players, like Invertidos, are providing sophisticated investors with the ability to get in on these opportunities before they are available in the public markets in what is known as the secondary market.

5. Secondary market platforms are making it easier than ever to invest in pre-IPO companies

Companies like Invertidos are bringing access and liquidity to both new investors and early employees and investors who are seeking opportunities in privately-held organizations. This once inaccessible market has turned into a pretty efficient one, with additional visbility and transparency of its inner workings.

If you would like to learn more about how you too can get in early and enjoy extraordinary returns with the next cohort of technology companies before they go public, please drops us a note and we will be more than happy to walk you through the process and the different opportunities we have available.