In 2016, a little-known law was passed... one that leveled the playing field for average investors.
Before, only millionaires could invest in pre-IPO companies. But today you can invest with as little as $100. You can now invest in the Facebooks, Snapchats and Ubers of the future.
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...
When a company goes public, it’s called an IPO, or initial public offering. That’s when the company is listed on a stock exchange and anyone can buy shares of the business. But before a company has its IPO, it’s in the early investing stages.
During the early stages, a business needs funding to grow. So the business often raises funds from investors. But up until 2016, only accredited investors could buy into a business before its IPO.
An accredited investor is someone who has more than $1 million saved up... or has at least two years of annual income of $200,000 or more.
Average investors couldn’t invest in the pre-IPO companies with enormous growth potential. And startup companies needed more investors. These were two reasons why the rules were changed.
The new startup investing rules opened the door for everybody to invest in early-stage companies. One new rule, called Title 3, lets businesses raise up to a million dollars from you. The round is very early – usually the company’s first attempt at raising money from strangers.
As the startups grow, they’ll raise new rounds of funding.
Another rule, Regulation A+, lets companies raise up to $50 million from you. Since this round comes later, a startup’s development is expected to be further along.
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. You have a huge selection of early-stage companies to invest in... but not every deal is great.
That’s why the Early Investing editors – Adam Sharp and Andy Gordon – specialize in pre-IPO research. They analyze thousands of companies and use their connections to find the best deals.
When you’re finally ready to invest in pre-IPO companies, you don’t have to invest in everything that comes along. You might want to start in sectors that you’re familiar with. But it’s good to diversify.
As for how many companies you should collect over a year’s time, the answer again is “whatever you’re comfortable with.” But the general rule is the more, the better. So if you can do 10 a year, that’s great. Fewer than 10 a year is also fine, but you should really try to invest in more than a handful.
Why is it better to have more? Because all it takes is one big winner to really make a difference in your life. And the more companies in your portfolio, the better your odds of owning the shares of a big (as in REALLY BIG) winner.
Now, before you can diversify – or even buy into a single deal – you need access to these deals.
To gain access, you can invest through online portals, not through brokers or brokerage firms. But the portals will be just as helpful as a broker. If you run into problems, they’ll be able to help you out.
Below you’ll find a few of the top portals to invest in pre-IPO companies...
Wefunder has taken the early lead in equity crowdfunding.
It hit the ground running on May 16, 2016 (the day early-stage equity crowdfunding launched), with 20 high-quality offerings within its first week. That was more than everyone else combined.
The first deal on its platform was a startup called Zenefits, which has gone from being worth $9 million in 2013 to around $3.5 billion today!
Wefunder was also instrumental in getting the JOBS Act (which made this whole service possible) passed and signed into law.
Right now, it’s the best place for investors to start looking at deals. It’s got a large number of quality offerings and the lowest fees around (5% total). All the information is clear and easy to understand, and the deal terms are shown prominently.
You can read more about the portal on Wefunder.com. Check out its live deals here.
SeedInvest.comNew York-based SeedInvest has also been doing these types of deals for a while. But until recently, it’s accepted only accredited investors.
Adam has gotten to know the team there over the last two years. They’ve built an impressive platform and do a great job of screening startups. Adam has even recommended a few of their featured companies to members of his research service Startup Investor.
SeedInvest has a number of live early-stage deals. It also has a number of Regulation A+ listings. (As a reminder, Regulation A+ offerings are larger deals of up to $50 million.)
Republic.coRepublic is a spinoff in the making from AngelList, which is a leading accredited investor portal. AngelList has some truly impressive deals, and some of its startups will opt to “top off” their rounds via the crowd on Republic.
For consumer startups, offering a small part of a round to non-accredited investors is a great option, attracting more investors, champions, helpers, enthusiastic supporters and money. It also gives friends and family a way to invest.
AngelList should feed Republic a steady drip of quality deals as it builds its own brand. Republic is positioned to have some of the best deal flow around.
Republic’s founder is Kendrick Nguyen, a former general counsel at AngelList. Adam has spoken on the phone with Kendrick a few times and came away impressed. This business is one to watch.
These three portals are top-notch ways to access equity crowdfunding.
You can now invest in pre-IPO businesses with as little as $100. And investing in the right startups could produce huge returns.
Good investing,
Brian Kehm
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