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Can Investing Before an IPO Be a Good Decision

Investing can be extremely lucrative, but it needs to be done properly. If you don’t spend time putting in the right levels of research you could end up losing your money quickly. Investing in private stock means investing before the company goes public. Usually, companies go public by holding an initial public offering (IPO). Not all private businesses end up on the stock market, of course - but if you’ve got a feeling they will and invest when private, you could end up making some extra cash. Here we’ll look at those pre ipo investments and whether they’re a good call.

What is an IPO?

First, let’s cover what an IPO is. An IPO stands for an initial public offering and is where a company decides to go public and offer up its stock for purchase by the public. It’ll list on a relevant stock exchange where retail investors can trade the stock. Initial public offerings can be exciting times on an investors calendar however, buying right away isn’t always the best decision as during an ipo release the stock can quickly inflate. However, this can be good for those who invested on a pre ipo basis.

Example of Pre IPO Stock: Kraken IPO

Let’s take a look at a stock that’s still private, but with rumors of an eventual IPO coming thick and fast. Kraken is a great stock that many have invested in privately. They’ve created a global marketplace for the buying and trading of different currencies. They want to build an online currency exchange that’s extremely convenient and also reliable. Rumors of a kraken ipo have been flying ever since Jesse Powel, the CEO, in 2021 mentioned that they’d like to take kraken public with an ipo at some point over the next 12 months. It hasn’t happened yet, but that’s certainly a statement of intent. 

As you can see, it looks like, for this particular company, they’re just getting everything in a row before pulling the trigger on an IPO. So, if you want to invest in a pre ipo company you need to find one that has voiced their desire to go public.

Why Is Investing Pre IPO Good

Well, for a start, when the company remains private the stock will grow in value as the business grows. If a business is looking at joining the stock market, they’ll want to do so when their value is the highest. If they haven’t joined yet the probability is they think certain releases, events and news might increase the value of their business. So, investing in the stock before an IPO means you’ll get a return on your investment.

Also, as we’ve said, IPOs can be historically overpriced and inflatory because people are eager to buy in at the start of a businesses stock market journey. Investing pre ipo ticks a lot of boxes.

However, you do need to make sure that you’re comfortable with the business and with what it’s doing. This requires research. You don’t want to invest in a business on a downward spiral because you’ll end up losing money if the business loses value. Remember, private stock value is dictated by the business too… so you’ll need to make sure it’s a fair valuation. There are strict guidelines for businesses around this but sometimes they can get it wrong.

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