Pre-IPO
Pre-IPO refers to the period during which a company does not yet have shares that are freely tradable on the stock exchange, but is already preparing to go public. Anyone who invests during this phase buys shares outside the stock exchange – often with high return potential, but also with high risk and poor tradability.
A share is a small ownership stake in a company. For most large companies, anyone can buy such shares on the stock exchange, i.e. on a public marketplace for securities. The day a company first sells shares to everyone there is called a stock market launch, or IPO in English, short for Initial Public Offering. Everything that happens before that is called Pre-IPO, literally “before the IPO”. During this phase, the company still belongs to a small circle: the founders, the employees, and a few investors. Shares only change hands here through private contracts, not via the stock exchange.
Why so much money is made before the IPO
Many of today’s most valuable technology companies stay private for a surprisingly long time. In the 1990s, companies often went public after just four years. Today, ten years or more often pass. So the largest part of the value growth happens before ordinary investors are even allowed to participate.
For investors, this is a strong incentive to get in early. Anyone who bought shares in a later billion-dollar company in 2010 paid a fraction of today’s price. That is precisely why a veritable race has emerged around AI companies. Names like OpenAI, Anthropic, or SpaceX constantly appear in the news, even though you can’t buy their shares anywhere.
The downside is rarely mentioned. Pre-IPO shares are barely sellable because there is no open market for them. You often sit on them for years. And many young companies fail before they ever go public. Then the share is simply worth nothing anymore.
How shares change owners without a stock exchange
During the Pre-IPO phase, a company raises money in so-called funding rounds. It issues new shares and receives capital from investors in exchange. These rounds are numbered: seed, Series A, Series B, and so on. With each round, the valuation – i.e. the calculated total value of the company – usually rises.
However, this valuation is not a market price in the strict sense. It is negotiated between a few parties. If an investor pays ten million for one percent of the company, the company is calculated to be worth one billion. Whether anyone else would also pay this price, nobody knows. On the stock exchange, by contrast, the price is newly formed every second from supply and demand.
There is also the secondary market. There, existing shareholders or employees resell their existing shares instead of new ones being issued. Such sales usually require the company’s approval. Specialized platforms now also bundle such shares for smaller investors. Often, however, what you buy there is not the shares themselves, but only a claim via an intermediary fund.
Pre-IPO in headlines and investment products
You encounter this term almost daily in business news. Reports like “Company X is valued at 300 billion dollars in a Pre-IPO round” refer exactly to this process. Such figures come from private negotiations and should be read with caution. They are a snapshot, not a market price.
For startup employees, Pre-IPO is very concrete. They often receive part of their salary in the form of equity options. Their value is hard to pin down before the IPO, and even harder to convert into cash. Only the IPO or a sale of the company turns it into real money.
A common misconception is that Pre-IPO is simply a particularly cheap stock. In fact, key protective mechanisms of the stock exchange are missing here: audited quarterly figures, disclosure obligations, and a daily trading price. Advertising that promises retail investors “exclusive access” is also a well-known pattern of dubious offers. Anyone looking into this term should therefore read it primarily as a sign of a lack of transparency, not as a promise of returns.