Investing
Oorja Pal
TL;DR: Pre-IPO investing means acquiring equity in a private company before it lists on a public exchange. The structural case is real — but access is gated, liquidity is constrained, and exits rarely arrive on the timeline investors expect. This piece orients you to the asset class. Linked chapters go deeper on each component.
The IPO Is Not the Beginning
For most investors, a company's public debut is when it enters the picture. That's also, increasingly, when the fastest growth is behind it.
Between 1980 and 2024, the median age of companies going public more than doubled — from roughly 8 years in the mid-1990s to 14 years in 2024, according to Jay Ritter's long-running IPO dataset at the University of Florida. Median revenue at IPO, inflation-adjusted, rose from $64 million to $218 million over the same period. Companies reach public markets later, larger, and more valued than they once did.
The implication is straightforward: more of a company's highest-growth phase now occurs while it is still private. By the time shares trade on a public exchange, a significant portion of the compounding has already happened. Pre-IPO investing is the attempt to participate before that window closes — with real constraints that this piece will lay out.
What "Pre-IPO" Actually Means
The term gets used loosely. In practice, it refers to equity in a private company, acquired through one of several distinct structures. Which one you're in matters — for your legal rights, your liquidity options, your tax treatment, and your claim on proceeds if an exit occurs.
Primary shares are newly issued shares sold by the company in a funding round. The company receives the capital; investors receive equity. Access typically flows to institutional investors — VC and growth equity funds — though platforms now aggregate individual capital into these rounds. Aggregation is not the same as access. Pooled capital can enter a round at the same headline valuation as institutional investors, or it can enter through a structure that layers in additional fees, weaker rights, and no direct position on the cap table. The difference is in how the deal is sourced, structured, and priced — not just whether participation was possible.
Secondary shares are existing shares sold by a current holder: an employee, an early angel, a fund seeking liquidity. No capital goes to the company. Secondary transactions involve their own mechanics — transfer restrictions, company consent rights, pricing relative to the last round — that warrant separate treatment.
Special Purpose Vehicles (SPVs) are the most common structure through which individual accredited investors access private companies. An SPV is a legal entity — typically an LLC — created to pool capital from multiple investors into a single investment. You hold an interest in the SPV; the SPV holds shares in the company. The SPV manager handles legal documentation, company communications, and investor reporting.
VC and growth equity funds provide indirect exposure across a portfolio of private companies. A single manager makes all allocation decisions; you gain diversification but relinquish selection control, with capital locked up for the fund's duration.
Who Can Invest — and Why the Gate Exists
Pre-IPO investments in the United States are restricted to accredited investors under SEC rules. The thresholds for individuals:
Net worth exceeding $1 million, excluding your primary residence
Annual income exceeding $200,000 individually, or $300,000 jointly, for the past two years
Holders of Series 7, Series 65, or Series 82 licenses, regardless of wealth
The threshold exists because private securities are exempt from the disclosure requirements that apply to public companies. Public companies file financials, risk factors, and quarterly reports. Private companies owe no equivalent transparency to outside investors. The accredited investor standard is a regulatory proxy — imperfect, and increasingly debated — for investors capable of evaluating that opacity.
As of 2024, roughly 18% of U.S. households qualify. The number has risen steadily as the nominal thresholds, set in 1982, have not been adjusted for inflation.
Legal eligibility is necessary but not sufficient. Historically, even accredited investors lacked access to high-demand opportunities without existing institutional relationships or the ability to write large checks. That gap — practical, not legal — is what platforms in this space are built to close. Not all of them close it the same way. The distinction that matters is between access as availability and access as curation: whether the deals on offer have been evaluated for quality, positioned to protect the individual investor, and priced to reflect actual risk — not just made available because someone agreed to list them.
Where Returns May Come From
The return case for pre-IPO investing rests on a few structural arguments. They are worth distinguishing, because they carry different risks and apply differently to any given deal.
Growth capture. Companies going public later means more appreciation is occurring privately. An investor who enters at a lower valuation — before the growth is fully priced in — can potentially capture a portion of what a public market investor would miss entirely.
Illiquidity premium. You cannot easily sell a private investment. Markets rationally price that constraint into expected returns — illiquid investments must offer more to attract capital. Whether any specific deal prices the illiquidity fairly is a judgment that depends heavily on entry valuation.
Access scarcity. The most sought-after companies are oversubscribed. Investors who can participate capture value that others simply cannot reach. This premium is real, but fragile — it depends on whether the access is to genuinely high-quality opportunities, and at what terms. Terms go beyond price : the legal structure of your position, your place on the cap table, and whether the deal was sourced because it was desirable or because it was available.
Secondary discounts. Shares in secondary transactions are sometimes available below the company's last primary round valuation. That gap can represent a margin of safety. It can also reflect what the seller knows. A discount is not automatically a bargain.
Whether these arguments apply to a specific investment depends on what you're paying, what you're buying, and what happens to the company.
How Liquidity Actually Behaves
This is where most investors are surprised.
The path from investment to realized return is narrower and less predictable than it looks. The mechanics are worth being direct about.
Transfer restrictions. Even when a willing buyer exists, you may not be able to sell. Most private companies hold a right of first refusal (ROFR): before you transfer shares to a third party, the company can match the offer and buy them instead. Others require board approval for any secondary transfer. These provisions can block or significantly delay a sale regardless of market conditions.
Post-IPO lock-ups. When a company does go public, pre-IPO investors typically face a lock-up period — usually 90 to 180 days — during which they cannot sell. This is when insider selling pressure is highest and volatility most pronounced. The price on listing day is not the price at which you exit.
Tender offers. Company-sponsored or third-party tender offers have become an important liquidity channel as IPO timelines lengthen. Nasdaq Private Market facilitated approximately $15 billion in tender offers in 2025. Participation is not guaranteed and is often capped.
The exit may not arrive. Several high-profile companies pushed IPO timelines by 12 to 18 months in 2025 due to market conditions. Others have stayed private indefinitely, raised down rounds, or failed. An absence of public market pricing does not signal stability — it signals that the instability is less visible.
Plan for a minimum hold of 3 to 7 years. In many cases, longer.
Key Risks
Valuation opacity. Private valuations are set by negotiation at a point in time, not by continuous market pricing. A valuation from a peak-cycle funding round offers no protection if the company's next event — an IPO, a new raise, an acquisition — prices it lower.
Information asymmetry. Private companies are not required to disclose what public companies must. You are evaluating an investment with less information than the lead investors who set the price. In secondary transactions especially, sellers often have reasons for wanting liquidity that are not visible to buyers.
Dilution. Future funding rounds create new shares, reducing your percentage ownership. Anti-dilution provisions and pro-rata rights exist, but they are more commonly available to institutional lead investors than to individuals investing through SPVs.
Fee drag. SPV managers charge management fees and carried interest — typically around 20% of profits. These reduce net returns materially over a multi-year hold. Model the full fee structure before committing.
Concentration. A single pre-IPO position is an undiversified bet. Return distributions in private markets are far wider than in public ones — the gap between a strong outcome and a complete loss is larger. Diversification matters more here, not less.
Liquidity need. If circumstances change — a home purchase, a business need, an emergency — a private market investment cannot be liquidated on demand. Invest only what you can genuinely leave untouched.
Portfolio Fit
Most allocation frameworks for HNW investors suggest keeping alternatives — private equity, venture, pre-IPO — between 10% and 30% of investable assets, scaled to liquidity needs and time horizon.
For investors entering private markets for the first time, diversifying across multiple companies at manageable check sizes is more defensible than concentrating in a single name. When check sizes fall, the question shifts from whether to invest in private markets to how to build across them — across companies, stages, and sectors rather than resting on a single outcome. That is a different kind of investor behavior, and it produces a different kind of portfolio.
Before You Invest: A Decision Checklist
Structure. Am I buying primary shares, secondary shares, or an SPV interest? Do I understand what I actually own?
Liquidity horizon. Can I leave this capital untouched for 5 to 7+ years?
Valuation reference. What was the last primary round valuation? What am I paying relative to it?
Fees. What are the management fee and carry? What do they mean for net returns across exit scenarios?
Transfer restrictions. Could ROFR or board approval requirements prevent a sale before a formal exit?
Dilution protection. Do I have pro-rata rights or anti-dilution provisions?
Exit scenarios. What are the realistic paths to liquidity — IPO, acquisition, tender offer, secondary sale — and what does each return at current valuation?
Portfolio sizing. What percentage of my investable assets does this represent?
Information quality. What do I actually know about this company, and what am I taking on trust?
For educational purposes only. Not investment advice. Investing in private markets carries significant risk, including possible loss of principal. Past performance does not indicate future results. Goodfin is a technology platform, not a registered investment adviser.
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