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By Anthony Termini, Benzinga
Want to access the opportunities offered by pre-IPO companies? Click here to check out Linqto!
The day that Apple (NASDAQ: AAPL) went public, some 300 ordinary people became instant millionaires. That was because they owned shares of the company when it was still private. The difference between public and private companies has always been very straightforward. And San Jose, California-based Linqto wants you to know the difference.
The Differences Between Public And Private Companies
Anyone can own a public company. Shares are traded on exchanges like the NYSE or NASDAQ. But owning private companies before an initial public offering (IPO) – especially exceptional companies like Apple – had always been off limits to individual investors.
The investment appeal of owning shares of a pre-IPO company is valuation. According to private equity manager Bain & Company, “public assets have historically commanded “higher average valuations” than private companies.
These lower valuations make investments in private companies very appealing. They create an investment opportunity that can potentially deliver returns considerably greater than what is available in the public markets. Furthermore, a study by the Federal Reserve of San Francisco found that private companies are 50% more profitable than public companies due to factors such as reduced competition, higher risk tolerance and fewer federal regulations.
Yet, for decades, there had been significant barriers preventing individual investors from owning shares of a company before its IPO. That has changed.
Many Of The Barriers To Owning Pre-IPO Companies Have Been Broken
The most significant barrier to owning shares in pre-IPO companies used to be money. In the past, only deep-pocketed investors like venture capitalists, hedge funds and private equity managers had access to these lucrative investments.
The only individual investors that could participate were the limited partners in those funds. Even today, a limited partner in a venture, hedge or private equity fund must commit several hundred thousand to several million dollars to a series of funds to be considered. But there are other ways to invest in pre-IPO private companies.
A handful of digital platforms now offer individual investors access to these same opportunities. They include well-known names like Charles Schwab (NYSE: SCHW) and Robinhood Markets (NASDAQ: HOOD), as well as potentially lesser-known players like Forge Global Holdings (NYSE: FRGE), EquityZen and HIIVE.
One of the pioneers in the pre-IPO investment market is Linqto. Founded in 2010, Linqto has a unique value proposition. Unlike many of its competitors, Linqto doesn’t charge investors any fees.
Linqto is a broker/dealer registered with the Securities and Exchange Commission (SEC) and a member of the Financial Industry Regulatory Authority (FINRA). Investors pay a modest markup when they buy or sell shares – the exact same way they would when buying or selling common stocks or ETFs.
Investments made through some of Linqto’s competitors may require a long holding period – up to 10 years. Linqto’s objective is to offer companies that it expects to go public or to get acquired within five years.
Furthermore, while initial investment thresholds are as high as $100,000 at some of its competitors, Linqto provides individual investors access to pre-IPO companies starting with a minimum investment of $2,500. Subsequent investment minimums are $5,000.
Another differentiator between Linqto and other platforms is that investors can individually select the companies they invest in. Other platforms offer less control over the investment selection process. Many of those same platforms charge additional brokerage and other miscellaneous management fees, as well.
Linqto’s Requirements For Both The Pre-IPO Companies They Offer And For Investors
Linqto has a number of requirements for the companies it offers on its platform. Every private company is run through due diligence and a continually monitored review process to ensure it conforms to certain criteria.
Companies on the Linqto platform must be beyond the startup stage and well into growth mode. Their revenues must be above a minimum threshold, and they must be backed by committed institutional investors like venture capital or private equity firms.
The platform currently limits opportunities to specific industries, primarily in artificial intelligence, blockchain and digital assets, enterprise software, networking and IoT, hardware and FinTech.
Investors using the platform must also comply with certain requirements. For example, they must be accredited investors.
According to the SEC, individuals may qualify as accredited investors based on wealth and income thresholds or because of their financial sophistication. This means having liquid assets (excluding a primary residence) of at least $1 million and earnings of at least $200,000 ($300,000 if filing with a spouse or partner) in the last two years.
Financial professionals who hold a FINRA securities license like Series 7, Series 65 or Series 82 may also be considered accredited investors. The SEC says there are about 24 million households in the United States that would qualify as accredited investors.
Why Might An Investor Consider Private Pre-IPO Investments?
Including alternative investments in an otherwise well-diversified investment portfolio adds an additional opportunity to reduce overall portfolio risk. The returns of the two asset classes are not perfectly correlated.
Investing in public companies is relatively common, but pre-IPO companies can offer greater returns. It’s entirely possible that an investor may even find the next Apple on Linqto’s platform.
Click here to visit the Linqto website and begin your private investing journey!
Featured photo by Towfiqu barbhuiya from Unsplash.
Benzinga is a leading financial media and data provider, known for delivering accurate, timely, and actionable financial information to empower investors and traders.
This post contains sponsored content. This content is for informational purposes only and is not intended to be investing advice.
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