Pre-IPO round
A pre-IPO round is a company's last major fundraising before its shares become tradable on the stock exchange. It typically brings in several hundred million to billions from large investors and sets the price expectations for the IPO.
Young companies need money before they turn a profit. They get it by selling shares to investors. Such fundraisings are called funding rounds, and a company often goes through five or more of them. The pre-IPO round is the last one before the company goes public. IPO stands for “Initial Public Offering,” meaning the first public sale of shares to anyone. “Pre” simply means: before. This round usually brings together very large sums, often several hundred million euros or dollars.
The price everyone later orients themselves by
The pre-IPO round sets a figure that everyone knows afterward: the valuation. This is the calculated total worth of the company. If investors pay one billion for ten percent of the shares, the company is worth ten billion on paper. This figure then appears in every newspaper article.
At the subsequent IPO, this valuation becomes the benchmark. If the price on the first day of trading is higher, the IPO is considered a success. If it’s lower, the investors from the last round have lost money. This is precisely why pre-IPO valuations are debated so fiercely. At AI companies like OpenAI or Anthropic, such rounds have produced valuations in the hundreds of billions in recent years.
For the company itself, the round serves a practical purpose. It buys time. An IPO takes months of preparation, and the timing should be chosen well. Anyone who has raised money beforehand can wait until sentiment on the stock markets is favorable.
Who is allowed to take part
Private individuals do not participate in a pre-IPO round. Typical investors are sovereign wealth funds, pension funds, large asset managers and sometimes other corporations. They negotiate directly with the company, often over weeks. In the end there is a contract, not a stock price.
These investors have their risk hedged. A common instrument is the ratchet clause. It states: if the stock price later falls below an agreed value, the investors are given additional shares for free. They are thus compensated after the fact for having paid too high an entry price. For all other shareholders, this means dilution — their stake in the company shrinks.
A common misconception is that fresh money in a round automatically flows into the company. Often founders and early employees also sell part of their own shares. This money goes into their personal account, not into the company’s coffers. Professionals call this a secondary sale.
Why the round makes the news
Pre-IPO rounds are of interest to newsrooms because they offer one of the few glimpses into companies that are not publicly listed. Such companies are not required to publish their figures. But around a funding round, revenue and loss figures leak out because investors get to see them. Reports about AI startups are often based on exactly this kind of information.
For you as a reader, one distinction is especially useful. A valuation from a pre-IPO round is the result of negotiation between a few parties. A stock price, by contrast, arises daily from thousands of purchases and sales. The first figure can remain unchanged for years, even if the situation has long since changed.
Sometimes the IPO never happens at all. Companies stay private significantly longer today than they did twenty years ago, because private investors provide enough capital. In that case, one pre-IPO round is simply followed by the next pre-IPO round. In this case, the name is more a statement of intent than a description.