You might think that Pre-IPO or “Angel Investing” are an exclusive play ground for millionaires and billionaires… and likely for good reason.
Until recently, it was literally against the rules for regular folks to get access to private equity deals in private companies. Instead they were limited to what's called “accredited investors”, individuals who have more than $1 million in investable assets… or has at least two years of annual income of $200,000 or more.
But in 2016, a little-known law was passed that leveled the playing field for average investors.
Now the flood gates have opened to everyday investors.
That means you can now invest in the Facebooks, Snapchats and Ubers of the future long before they go public.
Early investors in Snapchat, for example, turned every $100 into $22,000. That’s a whopping 21,900% gain. And some new startups today will return even more.
The Real Money Is Made Pre-IPO
Just think about it: How rare is it to hear about 100% or 200% gains in the stock market? The stock market is crowded today, and the 100% gains are rare. That’s why you should consider pre-IPO investing.
Pre-IPO investing is a way to supercharge your portfolio’s returns. For those who are unfamiliar with this early-stage world, let’s dig into the details…
To access these deals, you don’t need to invest much today. Depending on a startup’s guidelines, you can put in as little as $100 per deal. The minimums will vary, but it’s doubtful they’ll be above $1,000.
Your access to pre-IPO investing keeps getting better. Hundreds of deals are popping up on “crowdfunding” portals. You have a huge selection of early-stage companies to invest in… but not every deal is great.
In fact, most of them are complete garbage.
That's why it's extremely important to do your research or get help from other highly-regarded researchers in the space.
A great resource for new pre-IPO investors is The Angels & Entrepreneurs Network, where renowned Angel Investors Neil Patel and Robert Herjavec (of Shark Tank fame) are releasing two private opportunities per month like the ones you see on Shark Tank.
They've also published several guides on exactly how you should evaluate various pre-IPO opportunities to maximize your upside and lower your risk.
Where to Buy Once You've Done Your Research…
These online equity crowdfunding platforms are available to U.S.-based investors and companies. While all platforms accept accredited investors, only some accept non-accredited investors. Many aren’t clear on this point, and a particular platform’s investor requirements may change at any time. Prospective investors should contact their platform of choice to determine current policy.
In all cases, investors need to provide their identity, income, and asset verification to register with the platform and participate in listed companies’ funding rounds. Unless otherwise noted, platforms don’t charge fees to register or maintain membership as an investor.
1. AngelList
Founded in 2010, AngelList is one of the oldest and most established equity crowdfunding platforms. It was originally conceived to broker connections between cash-strapped technology entrepreneurs and angel investors – high-net-worth, tech-savvy funders, many of whom earned their fortunes by selling out of their own successful startups.
AngelList remains true to its roots today. There are three main ways to invest in companies and funds on this platform:
- Deal-by-Deal Investments. Registered investors can partner with investor syndicates led by notable lead investors – usually venture capitalists with extensive Silicon Valley experience. Syndicates generally exist to invest in specific companies. They can have dozens or hundreds of investors who pool their resources to make low-six-figure investments. (The average check size is $200,000 to $350,000 per deal.) The minimum individual investment is $1,000. Be aware that single deals are by definition not diversified, so if you’re looking to build a customized angel portfolio, you’ll need to invest in a dozen or more individual deals across multiple market segments. Also, you need to do your own due diligence – it’s not wise to take the lead investor’s word on the deal’s suitability, even if their reputation precedes them.
- AngelList Access Fund. The AngelList Access Fund offers access to dozens or hundreds of individual deals. All are vetted by AngelList, cutting down on your due diligence responsibilities (though you should still vet all component companies yourself). The minimum investment is $100,000, so this isn’t for everyday investors.
- Professional Investors. This service is limited to high net worth individual and institutional investors (including family offices) that can afford to invest at least $500,000 at once. Professional investors get their own AngelList representative, plus rare access to company founders and executives.
Separately, AngelList operates a high-end job board that connects developers, engineers, marketers, medical professionals, and other talented job-seekers with early-stage companies looking for help. You don’t need to register as an investor to use AngelList’s job board.
2. CircleUp
CircleUp connects investors with consumer-facing startups, mostly in the technology, fitness, and food and beverage sectors. Most companies have at least $1 million in revenue, and all “have a tangible product or retail outlet that you can touch, taste, use, or visit.” CircleUp’s machine learning engine, Helio, evaluates more than 1 million companies on billions of individual data points to pick the most promising startups from the pack.
CircleUp features company profiles with information about each company’s products, business model, leadership, retail partners, revenue, and more. Through CircleUp’s DealFlow feature, platform-registered investors can see which companies are actively raising funds, view complete investment prospectuses, and even request product samples, if offered. An investment isn’t final until the company hits its investment target, which is usually in the six- or low seven-figure range.
There are two ways to invest with CircleUp:
- Direct Company Investments. If a company is actively fundraising, investors can purchase shares directly through the platform.
- Circles. Circles are index funds that purchase shares in multiple companies – often dozens – at once. CircleUp selects a highly qualified CircleUp member, typically a qualified investment professional with years of industry experience, to oversee each Circle. Circles can cover specific sectors, such as health food, or include a broader mix of companies favored by the lead investor.
In both cases, listed companies set the minimum investment amount – typically $1,000, but occasionally as low as $250 or $500.
3. Fundable
Fundable offers rewards-based crowdfunding, a la Kickstarter, as well as equity crowdfunding. For companies interested in equity crowdfunding, Fundable provides hands-on help with onsite profile building, pitch construction, and even business plan development. Now operating under the aegis of TheStartups.co, whose portfolio businesses include virtual assistant platform Zirtual, its wheelhouse is software, hardware, and consumer products startups.
Fundable’s basic company profiles are available to everyone. Registered users can request a prospectus and make nonbinding funding pledges through the Fundable platform. However, Fundable isn’t set up to broker direct investments. You need to contact potential investment targets directly, and all money and shares actually change hands outside the platform. Unless otherwise noted, the minimum investment amount is $1,000.
4. Crowdfunder
Though it doesn’t formally restrict admission, Crowdfunder‘s listed companies and funds skew heavily toward innovative consumer products, consumables, and social/nontraditional niches (such as green energy startups and African real estate funds).
Company and fund profiles are incredibly detailed, with sales metrics, case studies, business plans, third-party analyses, and leadership profiles visible to the public. Unlike many equity crowdfunding platforms, Crowdfunder makes these profiles visible to the general public, including unregistered users. Registered users can request a full prospectus and audited financial disclosures as well.
As with Fundable, investors make nonbinding funding pledges (“reservations”) through the Crowdfunder platform, but the actual funding transaction takes place off-site. Transactions don’t typically close until listed companies reach their investment target. Crowdfunder doesn’t explicitly set out an investment minimum, but it’s rare to find offerings with minimums lower than $1,000.
