But today I’ll show you another way to invest in private equity:
It still offers big upside potential...
But without all the risk.
Getting in Early
The earlier you invest in a start-up, the more money you can make.
That’s one of the golden rules of private equity.
Here’s just one example:
When Facebook went public in 2012, a private investor who’d invested in 2005 made 200,000%.
But some investors don’t like waiting that long to make a return.
And others don’t like investing in companies that are young and unproven.
Which is why they turn to a different type of private investment opportunity...
Pre-IPO Companies
“Pre-IPO companies” are private businesses...
But they’re not considered “start-ups” anymore.
These companies might have hundreds or even thousands of employees, and millions of dollars in revenue. They just haven’t gone public yet.
And while they’re far less risky than your typical startup investment...
The upside potential can still be very high.
Take Uber For Example...
As we’ve written about before, our business partner, Howard, invested in Uber very early on – when it was valued at just a few million dollars.
Earlier this year, he sold some of the stock he’d acquired for a gain of 40,000%...
Basically, he turned every $5,000 he invested into $2 million.
The investor that bought Howard’s stock from him is a “late-stage” investor...
Late-stage investors might not earn 40,000% returns...
But they’re doing just fine:
In fact, with Uber most recently valued at $40 billion, the investor that bought Howard’s stock is already sitting on a gain of about 1,200%.
Off-Limits to Most Investors
Maybe you’re thinking, “OK, so why doesn’t everyone invest in later-stage deals?”
Well, here’s the simple answer...
Since these deals tend to offer lower-risk and relatively high returns, they’re in extremely high demand.
Which is why, generally, only the very largest institutional investors can get in.
Individual investors like you and me have been shut out.
Until now...
EquityZen
Two weeks ago, I had the pleasure of meeting two fellow New York entrepreneurs:
Atish Davda and Philip Haslett.
They’re the founders of a new company called EquityZen.
EquityZen is cracking open the world of later-stage, pre-IPO deals for all investors.
Here’s how it works:
- Many start-ups compensate their early employees with stock. This helps to attract and retain top talent.
- With start-ups staying private longer nowadays, early employees might look for opportunities to take some money off the table. (Remember: for a fast-growing start-up, a little bit of equity could be worth millions.)
- EquityZen works with the employee to sell their stock to other investors – generally, to regular individual investors like you and me.
The investor gets access to stock in a fast-growing pre-IPO company...
And hopefully, when the company is acquired or goes public, the investor sees a big return.
EquityZen has already offered investors like us shares in some of the most promising pre-IPO companies in the world... from ZocDoc and Palantir to Cloudera.
Nothing is Guaranteed
But to be clear, pre-IPO investing isn’t without risk.
About a year ago, for example, e-commerce juggernaut, Fab.com, seemed to be on a clear path to IPO...
With hundreds of employees around the globe, and an expectation of $250 million in 2013 revenues, they raised money at a $1 billion valuation.
What a difference a year makes...
Today, Fab has just 35 employees. Reportedly, they’re struggling to stay alive.
Less Risk, Plenty of Reward
But to be fair, Fab is more of a cautionary tale than business-as-usual...
It’s a reminder to keep your guard up, no matter how much of a “sure thing” an investment looks like.
In general, pre-IPO opportunities offer less risk, with plenty of reward.
If you’re interested in learning more about the opportunities available on EquityZen, visit their website and request access.
Please note: Crowdability has no financial relationship with EquityZen. We’re an independent provider of education, information and research on start-ups and alternative investments.
Best Regards,
Founder
Crowdability.com
