Getting in on the Ground Floor with Pre-IPOs in a Tax-Advantaged Account

Back in the mid-90s, a new website appeared on the similarly new Internet that only sold one thing. Users keen on that one thing could saddle up their dial-up connections and enjoy a top-notch shopping and service experience, fueled by a tenacious, customer-focused company founder. He may have gotten his start by selling that one thing, but the founder’s aim from day #1 was to sell it better than anyone.

Nearly 30 years later, the website that once sold only one thing now sells everything. Amazon has blossomed into a worldwide e-commerce behemoth to the delight of consumers and investors alike. Those who paid $18 per share on the day the company went public are likely quite pleased with the $3,000+ value the stock enjoys as of this writing. Those who paid even less than $18—the pre-IPO investors—ought to be even happier.

Unlike the early days of Amazon, individual investors now have expansive access to private equity opportunities. The pre-IPO game is no longer limited to wealthy venture capitalists, and your self-directed IRA, Solo 401(k), or HSA can get in on the next “Big Thing.”

Ready to invest in private equity with your retirement plan? Click here to open a new account today.

How Pre-IPOs Work

Your tax-advantaged plan can purchase private equity the same way it can purchase shares of public companies. Rather than trade through the Nasdaq, you can browse a wide variety of online marketplaces that offer opportunities in the private sector, including pre-IPOs.

A “pre-IPO” (“pre-initial public offering”) company can raise additional capital by debuting its stock on public exchanges before going public. Your account could buy shares outright or it could onboard with a crowdfunding platform. Through crowdfunding, you would pool your account money with other investors to take a proportional equity stake.

In either case, you, as the account holder, can browse and select the private companies you believe in. Just remember that any documentation must be completed in the name of your account and not in your personal name. You must also inscribe “read and approved” in the margin of the signature page and provide your signature there rather than on the signature line. Once the necessities are in good order, the money will leave your account to execute the investment. Shortly thereafter, your account will receive its private shares in turn.

Things to Remember

The rewards for investing in pre-IPOs can be great, but there are a few considerations to bear in mind. Taking a position in a pre-IPO company will warrant due diligence on your part.

Furthermore, some pre-IPO investments require that you hold your shares for a predetermined length of time after the company goes public. These “lock-up periods” can sometimes last several months. The price of the stock could make volatile moves during those months depending on investor appetite for the company. So, before committing to a pre-IPO, understand that you may not have the chance to turn a quick profit by selling on IPO day.

Reach Out with Your Questions

NDTCO is here to help you make your private equity investments a reality. Click here to download our Private Equity Investing Guide. You can also give us a call at 888-766-1837 or send us a message through the Client Portal if you ever have questions or concerns.

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