I'm thinking of taking a certain % of my asset allocation, say 5-7%, and buying shares in pre-IPO companies.
Has anyone here done this? What platforms have you used? What have your results been? Any tips?
Also, does anyone have thoughts on pre-IPO companies you think are particularly compelling investments? I have some thoughts, e.g., Snowflake. But I'm interested in tapping the collective wisdom of the board. There are a lot of smart people on here.
ericcohen wrote: ↑Wed May 13, 2020 4:24 pm
I'm thinking of taking a certain % of my asset allocation, say 5-7%, and buying shares in pre-IPO companies.
Has anyone here done this? What platforms have you used? What have your results been? Any tips?
Also, does anyone have thoughts on pre-IPO companies you think are particularly compelling investments? I have some thoughts, e.g., Snowflake. But I'm interested in tapping the collective wisdom of the board. There are a lot of smart people on here.
Cheers
How would you invest in a pre-IPO company, unless an employee? Maybe via a Venture fund?
Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go. " -Mark Twain
ericcohen wrote: ↑Wed May 13, 2020 4:24 pm
I'm thinking of taking a certain % of my asset allocation, say 5-7%, and buying shares in pre-IPO companies.
Has anyone here done this? What platforms have you used? What have your results been? Any tips?
Also, does anyone have thoughts on pre-IPO companies you think are particularly compelling investments? I have some thoughts, e.g., Snowflake. But I'm interested in tapping the collective wisdom of the board. There are a lot of smart people on here.
There are legit secondary markets out there where you can do this. From my research, the minimums tend to be high. The shares are obviously illiquid once purchased (and oftentimes preferred shares are not available for purchase). You can go years without any exit event, if any at all. If there is none your shares are essentially worthless. Pickings in promising companies are slim and shares come and go quickly. These markets are a way to provide employees, founders and so forth with some liquidity by allowing them to cash out some of their stock before any exit event.
I looked at Fundrise, but honestly the fees on these are so high. Even with knowledge of the companies or relationships with people that work there that you trust, it's pure speculation. I think if you want pre IPO stock you should work at a startup. Thats how I got mine. We are now public, but startups take special people. I mean this in the best way.
There are firms that orchestrate the sales of private stock held by insiders to the public. A good friend tried to interest me in AirBnB, Impossible Foods, Palantir in 2019. The minimums weren't crazy, they would let me buy say 200 shares at a valuation per the latest private round. AirBnB was valued between 40-45B, IIRC.
Luckily, common sense prevailed and I decided to pass. I told my friend I'd rather buy these on the open market post-IPO, given the relatively dismal openings of recent IPOs.
I would strongly advise against buying stock in pre-IPO companies. Private valuations are still La-La land. Remember that it is in the interest of everyone involved to keep these private valuations high as long as possible and not mark them down. If they can reel in enough suckers at these high valuations, bearing good stories, they win and the investors lose. You mentioned Snowflake, their private valuation is just nuts right now. Are we to believe there will be zero impact on their business ?
A lot of these pre-IPO companies won't have an IPO at all (they will die before then). If you are tempted, buy them in the open market, after the initial drop.
Here is a link to a WSJ article by Jason Zweig. You'll might need a login to read, but the general idea is that the private market doesn't scrutinize investments as well as the public market does. Too many optimists and no short sellers. Prices get inflated. Consider WeWork parent We.
ericcohen wrote: ↑Wed May 13, 2020 5:40 pm
BrokenMan,
There are legit secondary markets out there where you can do this. From my research, the minimums tend to be high. The shares are obviously illiquid once purchased (and oftentimes preferred shares are not available for purchase). You can go years without any exit event, if any at all. If there is none your shares are essentially worthless. Pickings in promising companies are slim and shares come and go quickly. These markets are a way to provide employees, founders and so forth with some liquidity by allowing them to cash out some of their stock before any exit event.
Those sound like great reasons NOT to buy in. I would never do this with a significant part of my portfolio, which rules out "minimums tend to be high". Once in, you may never be able to get your money out? And if shares "come and go quickly", that implies a very limited window in which to evaluate the company or just blindly swallow the hype-man's advice who's giving you the opportunity.
And let me restate this part: "You can go years without any exit event, if any at all. If there is none your shares are essentially worthless."
ericcohen wrote: ↑Wed May 13, 2020 5:40 pm
BrokenMan,
There are legit secondary markets out there where you can do this. From my research, the minimums tend to be high. The shares are obviously illiquid once purchased (and oftentimes preferred shares are not available for purchase). You can go years without any exit event, if any at all. If there is none your shares are essentially worthless. Pickings in promising companies are slim and shares come and go quickly. These markets are a way to provide employees, founders and so forth with some liquidity by allowing them to cash out some of their stock before any exit event.
Thanks for the info. I'm just curious about the process.
Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go. " -Mark Twain
Having done this the "easy" way by working at pre-IPO companies and being granted options.....I didn't you do something else with your cash.
As stated by others above the valuations are impossible to verify with the info you'll be entitled to. Also magical thinking about a company's prospects is widespread. Of course there are real winners, but it's more luck than skill to spot them early.
I feel that these days targeting an IPO is a slight leading indicator of underperformance, too. The owners who really know they have a sure thing are staying private.
cheapskate wrote: ↑Thu May 14, 2020 11:39 pm
There are firms that orchestrate the sales of private stock held by insiders to the public. A good friend tried to interest me in AirBnB, Impossible Foods, Palantir in 2019. The minimums weren't crazy, they would let me buy say 200 shares at a valuation per the latest private round. AirBnB was valued between 40-45B, IIRC.
Luckily, common sense prevailed and I decided to pass. I told my friend I'd rather buy these on the open market post-IPO, given the relatively dismal openings of recent IPOs.
I would strongly advise against buying stock in pre-IPO companies. Private valuations are still La-La land. Remember that it is in the interest of everyone involved to keep these private valuations high as long as possible and not mark them down. If they can reel in enough suckers at these high valuations, bearing good stories, they win and the investors lose. You mentioned Snowflake, their private valuation is just nuts right now. Are we to believe there will be zero impact on their business ?
A lot of these pre-IPO companies won't have an IPO at all (they will die before then). If you are tempted, buy them in the open market, after the initial drop.
Funny that you mention those 3 companies. I ended up buying into two of those three. If I ever see Snowflake available at a decent valuation, I'll probably hop on that too. The allure of buying them pre-IPO rather than waiting for the IPO, of course, is that you will make your initial investment many times over when the stock IPOs. There have been some dismal IPOs, but there have been Zoom, BYND, etc.
I'm not as smart or special as those who have had the chance to work for start ups (or start one). Then again, I can diversify my investment more--and be choosier about the companies I invest in--than an employee who gets shares as compensation.
retired@50 wrote: ↑Thu May 14, 2020 11:49 pm
Here is a link to a WSJ article by Jason Zweig. You'll might need a login to read, but the general idea is that the private market doesn't scrutinize investments as well as the public market does. Too many optimists and no short sellers. Prices get inflated. Consider WeWork parent We.
These types of "investments" are mostly akin to buying lottery tickets. If you find it a fun activity, go ahead, but don't invest any amount you wouldn't be fine with never seeing again.
Palantir Technologies Inc., the secretive big-data firm, plans to file to go public in the coming weeks and could start trading as early as the fall, according to people familiar with the matter.
The Palo Alto, California-based company is preparing to register an S-1 filing confidentially with the U.S. Securities and Exchange Commission, said the people, who asked to not be identified because the matter isn’t public.
(Bloomberg) -- Snowflake Inc., a cloud data platform that was valued at $12.4 billion in a February funding round, has confidentially filed initial public offering paperwork with the Securities and Exchange Commission, according to people with knowledge of the matter.
The San Mateo, California-based company is in talks with potential underwriters about a public listing that could come within months, said one of the people, who requested anonymity because the discussions are private.
Palantir Technologies Inc., the secretive big-data firm, plans to file to go public in the coming weeks and could start trading as early as the fall, according to people familiar with the matter.
The Palo Alto, California-based company is preparing to register an S-1 filing confidentially with the U.S. Securities and Exchange Commission, said the people, who asked to not be identified because the matter isn’t public.
What was the valuation of Palantir when you bought in? It looks like it has been flat or down over the past six or seven years, at least.
"The Basic Choices for Investors and the One We Strongly Prefer" |
|
https://www.berkshirehathaway.com/letters/2011ltr.pdf
Palantir Technologies Inc., the secretive big-data firm, plans to file to go public in the coming weeks and could start trading as early as the fall, according to people familiar with the matter.
The Palo Alto, California-based company is preparing to register an S-1 filing confidentially with the U.S. Securities and Exchange Commission, said the people, who asked to not be identified because the matter isn’t public.
What was the valuation of Palantir when you bought in? It looks like it has been flat or down over the past six or seven years, at least.
That doesn't matter. It's about to go through the roof.
Hey all, I thought I would check in with an update as one of my investments-Palantir- has now gone public.
I’m a bit disappointed as to how things have played out with the company. I feel that a direct listing was a bad choice as they didn’t have the institutional support that companies doing the traditional IPO route would get. For example, underwriters propping up the price during trading and generating posItive buzz. Also there were some questionable corporate governance decisions that have, IMO, led to a depressed share price (f class shares?)
That said, I have doubled my investment. A 100% return in less than a year is good. But it really should have gone up at least 200 or 300%. I plan on holding through release of this years earnings and probably beyond
All in all it’s been a good experience. The platform I invested through and the people associated with it have been fantastic. No carried interest or other fees upon exit. And they gave me an introduction to the venture capital group at Morgan Stanley where my shares are now being held and may open up some additional opportunities. I enjoyed the process so much that I’ve made two additional investments in two other late stage companies.
@ericcohen nice! Just wanted to give you a shout-out for making a right bet. My son 12 yo yesterday asked if palantir was a good stock. Ever since I opened a stock account for my 2 kids my son seems to turn into an investment "consultant", telling his 12 yo friends about stocks. Which is awesome. I told him that palantir was just IPO'ed so might not be a good buy (I don't buy stocks right after they IPO. I do hold SPLK which is a competitor of palantir tho.
So if you decide to sell it now, less than a year after you bought it "unconventionally"b how is your gain tonight be taxed? Long / short term or income, do you know?
GoldenGoose: thanks! You really have to sift through a lot of companies, so yeah it was nice to get it right. Would’ve been amazing had I found snowflake shares. It seems they were available on secondary markets but before I started looking.
To answer your question, I haven’t really thought about it, but I assume it would be a short term capital gain.
Cheers
edit: and I think that’s good advice to your son. The market is telling Palantir management that they are going to need to prove themselves by growing the corporate side of their business and keep yoy growth numbers. I think they do it. But they are not going to prove themselves overnight.
ericcohen wrote: ↑Thu Oct 01, 2020 6:02 pm
Hey all, I thought I would check in with an update as one of my investments-Palantir- has now gone public.
I’m a bit disappointed as to how things have played out with the company. I feel that a direct listing was a bad choice as they didn’t have the institutional support that companies doing the traditional IPO route would get. For example, underwriters propping up the price during trading and generating posItive buzz. Also there were some questionable corporate governance decisions that have, IMO, led to a depressed share price (f class shares?)
That said, I have doubled my investment. A 100% return in less than a year is good. But it really should have gone up at least 200 or 300%. I plan on holding through release of this years earnings and probably beyond
All in all it’s been a good experience. The platform I invested through and the people associated with it have been fantastic. No carried interest or other fees upon exit. And they gave me an introduction to the venture capital group at Morgan Stanley where my shares are now being held and may open up some additional opportunities. I enjoyed the process so much that I’ve made two additional investments in two other late stage companies.
If anyone has questions feel free to ask.
What platform did u buy the shares through?
"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" - Upton Sinclair
ericcohen wrote: ↑Wed May 13, 2020 4:24 pm
I'm thinking of taking a certain % of my asset allocation, say 5-7%, and buying shares in pre-IPO companies.
Has anyone here done this? What platforms have you used? What have your results been? Any tips?
Also, does anyone have thoughts on pre-IPO companies you think are particularly compelling investments? I have some thoughts, e.g., Snowflake. But I'm interested in tapping the collective wisdom of the board. There are a lot of smart people on here.
Cheers
How would you invest in a pre-IPO company, unless an employee? Maybe via a Venture fund?
Palantir Technologies Inc., the secretive big-data firm, plans to file to go public in the coming weeks and could start trading as early as the fall, according to people familiar with the matter.
The Palo Alto, California-based company is preparing to register an S-1 filing confidentially with the U.S. Securities and Exchange Commission, said the people, who asked to not be identified because the matter isn’t public.
What was the valuation of Palantir when you bought in? It looks like it has been flat or down over the past six or seven years, at least.
That doesn't matter. It's about to go through the roof.
Palantir Technologies Inc., the secretive big-data firm, plans to file to go public in the coming weeks and could start trading as early as the fall, according to people familiar with the matter.
The Palo Alto, California-based company is preparing to register an S-1 filing confidentially with the U.S. Securities and Exchange Commission, said the people, who asked to not be identified because the matter isn’t public.
What was the valuation of Palantir when you bought in? It looks like it has been flat or down over the past six or seven years, at least.
That doesn't matter. It's about to go through the roof.
Why would it go through the roof?
Too much liquidity. Markets are just waiting (like a sprinter on starting blocks) on the next round of fiscal stimulus so they can rocket past the previous ATH.
ericcohen wrote: ↑Thu Oct 01, 2020 6:02 pm
Hey all, I thought I would check in with an update as one of my investments-Palantir- has now gone public.
I’m a bit disappointed as to how things have played out with the company. I feel that a direct listing was a bad choice as they didn’t have the institutional support that companies doing the traditional IPO route would get. For example, underwriters propping up the price during trading and generating posItive buzz. Also there were some questionable corporate governance decisions that have, IMO, led to a depressed share price (f class shares?)
That said, I have doubled my investment. A 100% return in less than a year is good. But it really should have gone up at least 200 or 300%. I plan on holding through release of this years earnings and probably beyond
All in all it’s been a good experience. The platform I invested through and the people associated with it have been fantastic. No carried interest or other fees upon exit. And they gave me an introduction to the venture capital group at Morgan Stanley where my shares are now being held and may open up some additional opportunities. I enjoyed the process so much that I’ve made two additional investments in two other late stage companies.
If anyone has questions feel free to ask.
What platform did u buy the shares through?
I used equityzen. And I have no complaints.
I see that someone mentioned MicroVentures: I’m signed up with them, but would probably not use them as their fees are excessive, IMO. carried interest, capital allocation fee, annual management fee (on an entirely passive investment!) and placement fee that is on the high side. Their minimums are a lot less though. I would only use them if there’s a deal I’m desperate for that I can’t find elsewhere.
These are definitely not "the Boglehead way", so I keep the stake small.
They are not included in most stock market indices, so to have any exposure, you will need to buy them directly, or there are a few ETF's that hold BDC's only.
“Now shall I walk or shall I ride? |
'Ride,' Pleasure said; |
'Walk,' Joy replied.” |
|
― W.H. Davies
I've done a few private investments. After reading this Twitter thread (written by someone with more tech industry opportunities than I), I decided to stop.
ccf wrote: ↑Sun Oct 04, 2020 12:03 pm
I've done a few private investments. After reading this Twitter thread (written by someone with more tech industry opportunities than I), I decided to stop.
Another update: still holding and, as I said above, plan to continue. PLTR’s stock price has gone up nicely over the last month, 80% or so. I’m close to 4x my initial investment.
Guys, I think this is a buy and hold forever type stock. This company has been ingratiating themselves in government circles and not in a superficial way. They are serious in becoming the “default operating system of governments around the world” as they put it. Today the U.S. Army chose PLTR to receive one of two prototype contracts to support network design implementation for the Army's next network modernization. i.e., they are embedding themselves in the army’s command software. They also have an AI development project with the army, project maven. The growth prospects are incredible, and that’s just in the government sector. So...not planning on selling anytime soon.
I am thinking of yet another private company investment—SpaceX. Anyone have any thoughts on that company?
ericcohen wrote: ↑Wed Nov 18, 2020 11:59 pm
Another update: still holding and, as I said above, plan to continue. PLTR’s stock price has gone up nicely over the last month, 80% or so. I’m close to 4x my initial investment.
Guys, I think this is a buy and hold forever type stock. This company has been ingratiating themselves in government circles and not in a superficial way. They are serious in becoming the “default operating system of governments around the world” as they put it. Today the U.S. Army chose PLTR to receive one of two prototype contracts to support network design implementation for the Army's next network modernization. i.e., they are embedding themselves in the army’s command software. They also have an AI development project with the army, project maven. The growth prospects are incredible, and that’s just in the government sector. So...not planning on selling anytime soon.
I am thinking of yet another private company investment—SpaceX. Anyone have any thoughts on that company?
I completely agree with your PLTR take. I'm not sure what to expect from SpaceX but I like SPCE. Check out JMIA and SNOW.
epicahab wrote: ↑Wed Nov 25, 2020 5:50 pm
I completely agree with your PLTR take. I'm not sure what to expect from SpaceX but I like SPCE. Check out JMIA and SNOW.
Hi epic,
I decided against SpaceX because, after some research, it doesn’t seem like they will go public anytime soon. Elon has said not until they’re doing routine trips to Mars. I like all of those 3 companies you suggested. But I’m looking strictly for pre-ipo companies right now and I prefer to take my risk there. The bulk of my portfolio is low risk index funds and municipal bonds. I do own ARKK and BTWNU and PLTR of course, and engage in some limited options selling.
I have added to my holdings in Flexport recently, but looking for my next idea! probably AI related?
I have stock in several and do not recommend it to anyone,
1. Invest in series A in 2015, f&f deal, supposed to be doing well but no money yet.
2. Employer shares, ex employer. Late, maybe series E. Has about 800 employees and I estimate I will make 3x or 4x if it ipos. But not a huge win and only paid option strike price. No money yet.
3. Current employer shares, series A.Successful company, will probably raise more money or get bought. No money yet.
epicahab wrote: ↑Wed Nov 25, 2020 5:50 pm
I completely agree with your PLTR take. I'm not sure what to expect from SpaceX but I like SPCE. Check out JMIA and SNOW.
Hi epic,
I decided against SpaceX because, after some research, it doesn’t seem like they will go public anytime soon. Elon has said not until they’re doing routine trips to Mars. I like all of those 3 companies you suggested. But I’m looking strictly for pre-ipo companies right now and I prefer to take my risk there. The bulk of my portfolio is low risk index funds and municipal bonds. I do own ARKK and BTWNU and PLTR of course, and engage in some limited options selling.
I have added to my holdings in Flexport recently, but looking for my next idea! probably AI related?
Cheers
Equityzen has a current pre-IPO available that's pricing at a discount to it's last round of funding not long ago, Taulia. Any thoughts?
I've never been on the investor side. But I've been an angel/seed employee at several startups. One of which later became "IPO of the year." And another is now a unicorn.
My take is that money can be made. But it's made by the actual angel or VC investors. Those investors are purchasing preferred shares with liquidation preference and participation rights. So they are buying a board seat to give them full insight and control, have the right to get their money back (or typically a guaranteed return above that) in the event of a decent but not fantastic exit. And if it looks like the company is going to have a fantastic exit, they have the rights to suggest/approve issuing more shares and the right to then buy those shares.
Buying common shares during a tender offer seems like a fools errand.
The only way I see buying pre-IPO common shares as a winner is if you are a major investor trying to take a stake in a well run unicorn (in which case the employee common shares may still be above 50% of the equity at IPO). Other than you are hoping for a huge exit, without any of the downside protection and upside rights of being a VC. And unlike employees with ISO, you really do need an IPO pop to get the huge win.
Ok that was long winded. But my feeling is either quit your job and become an angel/VC full time or forget it.
milktoast wrote: ↑Fri Jan 15, 2021 5:01 pm
I've never been on the investor side. But I've been an angel/seed employee at several startups. One of which later became "IPO of the year." And another is now a unicorn.
My take is that money can be made. But it's made by the actual angel or VC investors. Those investors are purchasing preferred shares with liquidation preference and participation rights. So they are buying a board seat to give them full insight and control, have the right to get their money back (or typically a guaranteed return above that) in the event of a decent but not fantastic exit. And if it looks like the company is going to have a fantastic exit, they have the rights to suggest/approve issuing more shares and the right to then buy those shares.
Buying common shares during a tender offer seems like a fools errand.
The only way I see buying pre-IPO common shares as a winner is if you are a major investor trying to take a stake in a well run unicorn (in which case the employee common shares may still be above 50% of the equity at IPO). Other than you are hoping for a huge exit, without any of the downside protection and upside rights of being a VC. And unlike employees with ISO, you really do need an IPO pop to get the huge win.
Ok that was long winded. But my feeling is either quit your job and become an angel/VC full time or forget it.
I mostly agree with you. But you don't have to be a full time angel. I am an angel investor as part of an angel investors group that invests in high tech start ups. While I wasn't part of the group they have had some exits in the range of 10x, 4x etc. And several busts as well - which is expected.
The best thing to do is become part of a local angel investors group. Especially one that doesn't have any fees (other than annual membership fees) and gives flexibility of how much you must invest. It is so interesting to see different pitches and how innovative people are. In our group maximum time needed is about 25-30 hours a year to listen to pitches and if they decide to invest than reading the due diligence report and making a decision.
Having seen the process and diverging expertise and opinions of fellow angels, I would never invest alone as an angel. I would never be able to see many downsides and risks on my own.
ericcohen wrote: ↑Wed May 13, 2020 4:24 pm
I'm thinking of taking a certain % of my asset allocation, say 5-7%, and buying shares in pre-IPO companies.
Has anyone here done this? What platforms have you used? What have your results been? Any tips?
Also, does anyone have thoughts on pre-IPO companies you think are particularly compelling investments? I have some thoughts, e.g., Snowflake. But I'm interested in tapping the collective wisdom of the board. There are a lot of smart people on here.
Cheers
The problem is that you are buying these shares mostly from people who have a lot of non-public information about the company (company management and employees).
You may easily end up buying the shares at a too high price...
epicahab wrote: ↑Wed Nov 25, 2020 5:50 pm
I completely agree with your PLTR take. I'm not sure what to expect from SpaceX but I like SPCE. Check out JMIA and SNOW.
Hi epic,
I decided against SpaceX because, after some research, it doesn’t seem like they will go public anytime soon. Elon has said not until they’re doing routine trips to Mars. I like all of those 3 companies you suggested. But I’m looking strictly for pre-ipo companies right now and I prefer to take my risk there. The bulk of my portfolio is low risk index funds and municipal bonds. I do own ARKK and BTWNU and PLTR of course, and engage in some limited options selling.
I have added to my holdings in Flexport recently, but looking for my next idea! probably AI related?
Cheers
Equityzen has a current pre-IPO available that's pricing at a discount to it's last round of funding not long ago, Taulia. Any thoughts?
Thank you
I saw that, but wasn’t interested. It may be a great buy, I just don’t know anything about the company.
