3 ways to invest in a company before it IPOs

Business Insider

2 days ago

Circle stock has surged over 500% since its June 5 IPO. Imagine buying in before the hype.
While it might seem like pre-IPO investing opportunities are reserved for insiders and institutional investors, there are actually a few ways everyday investors can get in early.
It's an exciting time for the IPO market: after years of sluggish activity, things are picking up, and Wall Street is anticipating more public issuances in the pipeline.
In addition to Circle, notable IPOs this year include the cloud-computing company CoreWeave and financial technology company Chime. This week, the design platform company Figma filed to go public.
There's been a big push for financial institutions to democratize their offerings. Traditionally, only institutional investors and high-net-worth individuals had access to IPO shares at the offering price.
Han Qin, CEO of the blockchain-based IPO investing platform Jarsy, sees increasing IPO appetite, especially among Gen Z and millennials.
"They follow the news about SpaceX and xAI," Qin said. "But because these companies stay private, retail investors can't access them easily and feel like they can't participate in the growth state."
Below are three ways for everyday investors to gain access to the pre-IPO market.
Online brokerages
In recent years, brokerage firms such as SoFi, Robinhood, and Charles Schwab have been offering their clients opportunities to buy into pre-IPO opportunities.
These platforms partner with underwriters to allow eligible users to request shares in upcoming IPOs at the offering price, which is the same price institutional investors pay before the stock goes live on public exchanges.
Craig Stephens, a 50-year-old investor, has been investing in companies before their IPOs for over a decade. Stephens got his start before more mainstream brokerages offered pre-IPO investing with Loyal3, an online broker that shut down in 2017.
Some of his notable investments include Instacart, Arm Holdings, and Circle.
Stephens noted that this method's success rate depends on the overall demand for the IPO and individual account size. In his experience, he's found that legacy brokers have higher capital requirements. And while Robinhood and SoFi are more accessible for everyday investors, higher demand on these platforms often leads to investors only receiving a fraction of the shares they requested.
Qin himself requested Circle shares on Robinhood but didn't end up receiving any because demand was so high, he told Business Insider.
Direct share programs
It's common for companies to offer IPO access to employees, and sometimes even loyal customers or users.
One notable example is Reddit, which went public in March 2024. The social media company allowed top users and moderators to participate directly in its IPO.
Reddit also set aside shares of its IPO for individual investors to purchase on Robinhood, with priority determined by individual investors' Reddit "karma."
For Stephens, his first IPO investment was in LendingClub back in 2014. Because he had been an investor in the company's peer-to-peer marketplace, Stephens gained access to LendingClub shares before they hit the public market.
Qin points out that direct share programs are a good opportunity to invest in customer-facing companies, but aren't a good fit for others such as the B2B SaaS company Databricks that many anticipate to IPO soon.
Secondary markets
There are also funds that invest in private markets on behalf of a pool of investors.
For example, pre-IPO venture funds such as ARK Venture Fund and Fundrise Innovation Fund invest in a curated portfolio of private, high-growth companies that may eventually go public.
Their holdings include big names like SpaceX, Anduril, and Epic Games. These specific funds are open to non-accredited investors, meaning that everyday individuals can participate without needing a high net worth or income threshold.
However, investors don't get to pick and choose the companies they have exposure to, as the fund managers make those decisions and pool all contributions into a single diversified portfolio.
Accredited investors can also buy in through secondary marketplaces or special purpose vehicles that pool capital to invest in individual private companies. These options offer more control over which companies investors gain exposure to, but often come with higher minimums — typically starting at $10,000 to $100,000 — and less liquidity.
It's important to do your homework before buying into IPOs, Qin emphasized. It's an investment more suited to those with a higher risk tolerance, as early valuations can be unpredictable, and the share price can be prone to fluctuation after the company goes public.