Pre-IPO Investing FAQs: Everything You Wanted to Know (But Maybe Were Afraid to Ask)

Investing in the pre-IPO market can feel like a mystery. Information is often difficult to access because most private companies are not subject to the same ongoing SEC reporting requirements,¹ terminology can be unfamiliar, and transactions often happen out of the public view through private negotiations,² making it difficult to know where to start. But as companies stay private longer, understanding the opportunities, risks, and nuances of this evolving investment landscape is more important than ever. Whether you're new to pre-IPO investing or looking to deepen your understanding, here are answers to 25 questions investors are asking, plus a few you may not realize you maybe should be.

Understanding pre-IPO investing

1. Why is it so hard to access pre-IPO investments?
   Barriers to pre-IPO investing exist in large part because private securities typically lack some of the disclosure and investor protections available in the public market. Many private offerings are therefore limited to investors who meet certain financial or sophistication standards, such as the SEC’s accredited investor criteria.³
   
   Historically, pre-IPO investing was primarily available to venture capital firms, institutional investors, company insiders, and high-net-worth individuals. While access has expanded in recent years through pre-IPO marketplaces like EquityZen, private company investments generally remain less liquid and more difficult to access than publicly traded investments.
   
2. How is pre-IPO investing different from public market investing?
   The biggest difference is that private companies are not publicly traded. As a result, investors generally have access to less information, face lower liquidity, and may need to hold investments for longer periods before an exit opportunity arises. On the other hand, private-market investors may have the opportunity to participate in a company’s growth before it reaches the public market. A more in-depth explanation can be found in the EquityZen blog article, “How Technology Is Bridging the Public and Private Markets.”
   
3. How can I invest in private companies before they go public?
   Eligible investors can access private companies through secondary-market transactions, private investment funds, special purpose vehicles (SPVs), or direct share purchases when available. Platforms such as EquityZen provide eligible investors with access to curated pre-IPO investment opportunities through single-company funds, multi-company funds, and certain direct share acquisition transactions.
4. What are the potential benefits and risks of investing in pre-IPO companies?

   Potential benefits include exposure to high-growth companies before they become publicly traded and the possibility of participating in value creation that occurs prior to an IPO. Risks include illiquidity, limited disclosure, valuation uncertainty, dilution, and the possibility that a company never experiences an exit event. Investors should carefully evaluate whether private-market investments align with their time horizon, risk tolerance, and overall portfolio objectives.

5. What is the difference between primary and secondary investments in private companies?

   A primary investment occurs when an investor purchases newly issued shares directly from an issuing company, providing capital that goes onto the company’s balance sheet.

    

   A secondary investment occurs when an investor purchases existing shares from a current shareholder, such as an employee, founder, or early investor. In a secondary transaction, the proceeds go to the seller rather than the company.

    

   EquityZen provides investors with access to the private secondary market, helping eligible investors gain exposure to private companies through shares sourced from existing shareholders.

6. How do secondary market transactions work?
   A secondary transaction occurs when an existing shareholder sells private company shares to another investor, rather than the company issuing new shares. On EquityZen’s platform, shares from existing shareholders are matched with investor demand, and EquityZen works directly with the private company to seek approval and coordinate the transaction through closing. More details on the process can be found in the article “Selling Shares on EquityZen: A Guide to Creating a Sales Inquiry.”
   
7. What is the difference between a tender offer and a secondary transaction?

   Both tender offers and secondary transactions can provide liquidity to shareholders of private companies without waiting for an IPO or acquisition, but they work differently.

    

   A tender offer is typically a structured liquidity event in which eligible shareholders are given the opportunity to sell some or all of their shares under specified terms, such as a set price and timeframe. The buyer could be the company itself, an existing investor, or a third-party investor.

    

   A secondary transaction generally involves an existing shareholder selling shares to another investor (such as an institutional investor, accredited individual investor, secondary fund, existing shareholder, family office, or other eligible buyers) in a separate transaction, subject to applicable company approvals and transfer restrictions. EquityZen primarily facilitates secondary transactions, connecting existing shareholders seeking liquidity with investors interested in private company shares.

8. What does it mean to be an accredited investor versus a qualified purchaser, and how do I know that I meet the criteria?
   An accredited investor is an individual or entity that meets specific financial or professional criteria established by the SEC. Qualification is often based on income or net worth thresholds, although certain professional credentials may also make you eligible. You do not need to be an accredited investor to sign up for EquityZen, but accredited investor status is required to view offerings and invest through an EquityZen fund.

    

   Because eligibility requirements can change and individual circumstances vary, investors should review the SEC’s current definition and consult a qualified advisor if needed.

    

   A qualified purchaser is an individual or entity that meets certain investment ownership requirements established under federal securities law. The eligibility standard for a qualified purchaser is higher than that for an accredited investor. An individual generally qualifies if they own at least $5 million in investments, as defined by SEC rules. Qualified purchaser status is required for investors to participate in certain EquityZen offerings, which typically have higher investment minimums.

   Evaluating pre-IPO investment opportunities

9. How can I research a private company before investing?
   An investor might start by reviewing any available financial information, business metrics, management team backgrounds, market opportunity, competitive landscape, recent funding activity, and secondary market pricing trends. Investors should also evaluate the company’s path to profitability, growth trajectory, and potential exit opportunities. For more in-depth guidance, read EquityZen’s “Guide to Investing in Pre-IPO Secondaries.”
10. What financial information should I review before making a pre-IPO investment?
    When available, revenue growth, profitability metrics, cash position, customer concentration, operating expenses, funding history, capitalization structure (including the types of securities it has issued), and management commentary are often helpful pieces of information. Because private companies generally disclose less information than public companies, investors should understand what information is available and what limitations exist.
    
11. How are shares of private companies valued on the secondary market? Because private shares do not trade on a public exchange, and because secondary transactions occur outside of funding rounds, secondary market prices are generally determined through negotiation and supply-and-demand dynamics. Considerations often include recent funding round valuations, company financial performance, growth expectations, market conditions, comparable companies, and investor demand.
12. Why can a private company’s secondary market price differ from its last funding round valuation?

    A funding round valuation reflects the price negotiated during a specific financing event, often involving preferred shares and strategic investors. Secondary market transactions can involve different share classes, market conditions, investor expectations, and liquidity considerations. As a result, secondary market prices may trade at a premium or discount to a company’s most recent funding round valuation. For example, a company’s last funding round may have involved preferred shares with rights that common shares sold in a secondary transaction do not have. That difference can contribute to different prices for the two securities.

13. What fees should I consider when investing in pre-IPO companies? Depending on the investment structure, investors may encounter transaction fees, brokerage fees, management fees, carried interest, administrative expenses, or fund-related costs. Before investing, carefully review offering documents to understand how fees may affect potential returns.
14. What should I compare when choosing a pre-IPO marketplace?
    Key considerations include investment minimums, available companies, transparency, investor protections, deal structure, fees, due diligence standards and processes, track record, and experience facilitating private market transactions. You should also consider whether single-company opportunities, diversified multi-company funds, or both are available. Investors should still conduct their own due diligence and carefully review each offering’s structure, fees, risks, and investment terms before investing.
15. What are the differences between investing directly in private company shares and investing through a fund or SPV?

    Direct ownership typically provides investors with shares in the company itself and may involve direct interactions with the company. However, direct investments often require larger minimum investments and more administrative responsibility.

     

    Funds and SPVs pool investors into a single investment vehicle, potentially reducing minimum investment requirements and streamlining transaction administration. The tradeoff is that investors generally own an interest in the vehicle rather than holding company shares directly. For this reason, it is important to evaluate the SPV’s structure before committing capital, as highlighted in the article “How to Spot a ‘Good’ Private Company SPV.

    How pre-IPO investing works

16. What happens to my investment if a private company never goes public?
    An IPO is only one possible exit path for a private company. Alternatively, the company may remain private, be acquired, merge with another company, provide shareholders with liquidity through a tender offer or other secondary transaction, or pursue another liquidity event. If none of these occur, investors may need to hold their investment longer than anticipated. Investors should always consider the possibility that a liquidity event may not occur and determine whether they are comfortable assuming that risk before investing.
17. Can I sell my pre-IPO investment before an IPO or acquisition?
    

    Potentially, but liquidity is not guaranteed. Depending on the investment structure, transfer restrictions, buyer demand, and company approvals, investors may be able to sell through a secondary transaction before a formal exit event.

     

    For example, investors may be able to explore an early exit on eligible EquityZen investments through Express Deals, which allow eligible investors to list an EquityZen fund interest for potential buyers. However, EquityZen does not guarantee that a buyer will be found or that an offering’s structure will allow for Express Deal transactions, so investors should be prepared to hold their investment for an indefinite period.

18. How can dilution affect my investment before a company goes public?
    Dilution occurs when a company issues additional shares through new financing rounds, employee equity grants, or other issuances. While dilution may reduce ownership percentages, new financing may also support company growth by providing additional capital.
19. How do IPO lockup periods affect when investors can access their proceeds?
    After many IPOs, shareholders are subject to a lockup period that restricts share sales for a set amount of time. While lockup periods commonly last 180 days, their duration can vary and may extend beyond that timeframe. These restrictions are intended to limit immediate selling by existing shareholders and support an orderly transition to public trading. As a result, investors may not have immediate liquidity even after a company becomes publicly traded.
20. What are the different types of share classes available for investors in private companies, and how do they affect a pre-IPO investment?
    

    Private companies can issue different classes of stock, most commonly common stock and preferred stock, and the rights associated with each can affect the value and potential outcome of a pre-IPO investment. Common stock is typically held by founders and employees, while preferred stock is often issued to venture capital firms and other institutional investors through funding rounds.

     

    For pre-IPO investors, the share class matters because two classes of stock in the same company may have different economic rights and therefore may not have the same value or produce the same investment outcome. For example, a liquidation preference may entitle preferred shareholders to receive proceeds before they are distributed to common shareholders. Other terms, including conversion, dividend, and voting rights, can also vary by share class and company.

     

    Investors should understand the rights attached to a company’s capitalization structure, including the types of shares it has issued, and the rights and preferences associated with each, when evaluating an investment opportunity.

    Investing through EquityZen

21. How can I find out whether shares of a specific private company are available through EquityZen?
    After creating an account and confirming eligibility, you can browse available opportunities on the EquityZen platform through our website. You can also indicate interest in companies that are not currently live, allowing EquityZen to notify you when opportunities become available.
22. Do I need to be an accredited investor to invest through EquityZen?
    Yes. While anyone can create an EquityZen account, EquityZen’s investment offerings are available only to accredited investors, consistent with applicable securities regulations. Learn more about accredited investor requirements.
23. What is the minimum investment for pre-IPO opportunities on EquityZen?
    Minimums vary by investment type. Some pre-IPO opportunities may be available with minimums as low as $5,000 through certain funds, while other offerings may require significantly larger investments. Investors should review each offering for the applicable minimum investment amount.
24. When I invest through EquityZen, do I own company shares directly or an interest in a fund?
    Through EquityZen’s standard single-company and multi-company investments, investors purchase an interest in an EquityZen fund or SPV that owns the company shares. However, certain Direct Share Acquisition (DSA) opportunities allow investors to instead buy private company shares from an existing shareholder and gain direct ownership in the company. More information on EquityZen’s different investment solutions can be found in this explainer.
25. What is the difference between a single-company fund and a multi-company fund?
    A single-company fund provides exposure to one private company through a dedicated investment vehicle. A multi-company fund invests across multiple private companies, offering diversification through a single investment. EquityZen’s multi-company funds may hold portfolios of multiple late-stage private companies selected by an investment committee. Which approach is appropriate will depend on an investor’s goals, risk tolerance, desired level of diversification, and other investments.

Ready to explore pre-IPO investing?

Pre-IPO investing comes with unique opportunities, risks, and complexities. That’s why understanding the fundamentals is an essential first step if you’re interested in participating. Sign up for an EquityZen account to explore our offerings, access additional educational resources, and learn more about the private secondary market.