Stocks are tricky propositions. Even when investors become more seasoned, they’re still stuck with meager returns because the market is so saturated.
However, the returns can be far greater when investing in businesses before they go public. But up until recently, this was an option only available to the rich.
Now that investors don’t need millions of dollars to get in on the ground floor, more people can reap the impending rewards from lucrative markets, such as legal cannabis.
Let’s examine pre-IPO trading on a deeper level:
What is Pre-IPO Investing?
An initial public offering (IPO) is the term used to describe a company once it has gone public and is listed on the stock exchange where people can buy shares of the business.
However, during the building-block phase of a business – before the company has obtained its IPO classification – it needs funding from investors. The stage of accumulating those investments is known as pre-IPO. And up until 2016, only accredited investors could invest in pre-IPOs.
An accredited investor is someone with at least $1 million saved up or with two years of a $200,000-plus annual income.
As such, those lacking in a lofty income weren’t allowed to capitalize on the vast growth potential of a pre-IPO company.
Let’s put this growth potential into perspective: pre-IPO Snapchat investors saw $100 become $22,000 for a nearly inconceivable 21,900% gain. Whereas, a 200% gain on today’s over-populated stock market is all but a pipedream.
Frankly, it was unfair that the already-rich were the only investors with access to these highly-profitable opportunities.
Also, before 2016, startups were coming up short when looking for investors. Thus, the rules were changed to give anybody the chance to invest in a company throughout its infancy.
According to Title 3, one of the newly developed rules, businesses can raise up to a million dollars from non-accredited investors as early as a startup’s first round of fundraising.
Many startups will continue to raise new rounds of funding. If all goes according to plan, another new rule – known as Regulation A+ – will allow these companies to raise up to $50 million from non-accredited investors.
With the inception of the new pre-IPO rules, investors can potentially buy shares for as little as $100 (depending on the guidelines of a given startup). While minimums won’t always be the same, they likely won’t exceed $1,000.
Since today’s pre-IPO climate gives investors options they’ve previously never had, the chances of being led astray have increased.
Anybody with an interest in the stock market now has hundreds (if not thousands) of more options; not all of which are particularly great deals.
Since the required funding isn’t much, those ready to dip their toes into the pre-IPO market can afford to be aggressive. But that doesn’t mean they should invest in every opportunity that comes their way. Remember, there’s a difference between astute assertiveness and ill-disciplined frivolousness.
It’s wise for investors to start in familiar territory, then diversify once they’ve mastered their own domain.
Experts preach only investing in as many companies as is comfortable, but the magic number seems to be 10 per year. Only buying into a handful of pre-IPOs will limit the chances for success. Whereas, the more diverse a portfolio, the higher the chances of owning more lucrative shares and cashing out.
Cannabis Pre-IPOs Soaring Sky High
With laws and regulations throughout North America becoming more lenient towards marijuana, the legal cannabis market is ripe with pre-IPO investment opportunities.
For instance, Canopy Rivers provided pre-IPO investors with a 696% return in September 2018. Investor Jeff Siegel also has several pre-IPO cannabis investment success stories. One of those ventures led to a 796% profit.
The fact is, legal cannabis businesses are budding. And those with investment aspirations should do their best to get involved with these companies as early as possible in order to generate the best returns.
Online Investment Portals
Investing in pre-IPOs isn’t done through traditional brokers and brokerage. Instead, it’s accomplished via online portals – which are just as informative and helpful as their contemporaries.
Here is a list of the most ideal portals pre-IPO for investors to consider:
On May 16, 2016, Wefunder took the equity crowdfunding industry by storm. It received 20 high-quality offerings during the first week of its existence, exceeding the offerings of all other platforms combined.
The result? Wefunder is the current king of the equity crowdfunding castle.
Wefunder’s first partner was a startup called Zenefits. In 2013, Zenefits was worth $9 million; in 2019, it’s worth approximately $3.5 billion.
Given its abundance of quality offerings coupled with 5% fees (the lowest in the industry), Wefunder is the best place for any pre-IPO investors to start their journey. Wefunder’s information is transparent and easily accessible, while the terms of its deals are displayed with a pronounced clarity.
Based out of New York, SeedInvest has just recently opened its platform to non-accredited investors.
However, this shouldn’t deter anybody from leveraging its top-notch services. SeedInvest puts in the work to properly screen startups so that they can point clients in the right direction.
This savvy New York platform already has several live early-stage deals and a multitude of Regulation A+ listings.
As a branch-off from AngelList (a highly touted accredited investor portal), Republic is the platform where the former’s startups “top off” their rounds.
Offering a small part of a round to non-accredited investors is a smart move for consumer startups looking for more financial support (e.g. from friends and family).
Through AngelList, Republic will keep acquiring quality deals until it establishes its own industry foothold.
Start on the Ground Floor and End Up on Cloud 9
With the new pre-IPO rules in place, the sky is truly the limit for investors of all walks of life who wish to get in on the ground floor of a business.
Cannabis companies are particularly great places to start. And with the above online portals, the process will be as painless as it is lucrative.