How to choose a pre-IPO platform: 5 Key Considerations

Pre-IPO investing presents an exciting opportunity to access growth. However, the pre-IPO market has its own unique complexities like illiquidity and opacity. For investors and shareholders looking to successfully navigate this space, selecting the right platform is crucial. Here we break down five key factors to consider when choosing a pre-IPO investment platform.

1. Experience Matters: Look for a Proven Track Record

The pre-IPO market has significantly evolved over the last decade. As opportunities have grown, so have the number of players. The experience of a platform may be an indicator of its reliability and expertise in an ever-changing, complex market. Before investing, inquire about a company’s tenure in the market, the number of transactions they've successfully completed, and their relationships with private companies. An experienced platform is likely better equipped to handle the intricate legal and operational aspects involved in facilitating these complex private securities transactions. 

EquityZen has been a leading pre-IPO investment platform since 2013. In that time, we’ve built expertise from completing over 45,000 transactions for our clients.

2. Transfer Fees: Understand the Cost of Investing 

It's vital to understand a platform's fee structure as this will impact the potential return for your pre-IPO investments. While brokerage fees are a standard component, covering the operational costs of these specialized transactions, be cautious of platforms that claim "no fees." Often, this means the costs are incorporated as markups within the share price, potentially making your investment more expensive than platforms with explicit charges. Always investigate any ongoing (e.g. management fees, carried interest) or layered fees, especially if investments are structured through multiple Special Purpose Vehicles (SPVs). Clarity on fees can help you assess your potential returns.

EquityZen charges a one-time brokerage fee of 3-5% for single company investments. That’s it.

3. Company Approval: A Critical Safeguard for Ownership

Ensure the platform you’re investing through actively seeks and obtains company approval for each transaction. A company-approved transaction generally means that the company reflects the acquisition of the shares on its books and records. Without proper company consent, you could face significant risks (such as the transaction not being recognized by the company), particularly during liquidity events such as acquisitions or IPOs. Platforms that prioritize strong, collaborative relationships with private companies may be able to gain access to more investment opportunities from these companies directly. This increased deal flow can potentially benefit investors.

EquityZen is seen as a trusted partner by the private companies we work with. Each of EquityZen’s secondary transactions have been approved by the private companies we work with. For over 450 companies, our fund or our investors sit directly on these companies’ cap tables.

4. High Likelihood of Success: Maximize Your Investment Strategy 

Not every attempt to purchase shares in a private company will work out. Most private companies possess a "Right of First Refusal" (ROFR), allowing them to block secondary sales, or other transfer restrictions. A reputable platform will conduct thorough due diligence to confirm that shares are transferable, before offering an investment opportunity. This proactive approach increases the probability that your investment can successfully close, optimizing the deployment of your capital.

From over a decade in the market, we are experts on the rights and transfer restrictions for hundreds of private companies.

5. Diverse Offerings: Expand Your Investment Options

The more frequent and varied the investment opportunities a platform presents, the greater your ability to find a pre-IPO investment that aligns with your investment strategy. A platform with a robust network within the private market can consistently source a wider range of deals. Additionally, consider the types of investment products available—whether they offer single-company SPVs for targeted investments or diversified multi-company funds for broader exposure. Diverse options allow you to tailor your approach to the private markets, although diversification does not assure a profit or protect against market loss.

EquityZen’s platform launches several new deals each week - from multi-company funds to single company investments. We leverage our network of 750,000 market participants to spur deal flow.

Investing in the pre-IPO market can be incredibly rewarding, but comes with risks. Evaluating pre-IPO platforms based on these five key considerations can help you make informed decisions and enhance your potential for successful outcomes. Learn more here.