What is Pre-IPO?

Pre-IPO funds allow both individual and institutional investors to invest in late-stage, VC-backed private companies prior to a liquidity event (typically an IPO).

Note: TSG refrains from using the term “Pre-IPO” because it implies that a private company will definitely go public and is already in the later stages of that process. With late-stage, VC-backed private companies, there is no way to be certain that a) the company will go public, and b) the company will go public within a specified timeframe. Some of the private companies in which TSG invests can be considered as late-stage in the VC business cycle. TSG offers access to these investments via our secondary funds.

Accredited investors are able to acquire shares of Pre-IPO companies much like purchasing public stocks, with one key difference: Pre-IPO shares are far less accessible to the general investing public. Pre-IPO, which is shorthand for pre-initial public offering, is a subset of private equity investing that focuses on late-stage companies that are projected to be nearing a liquidity event (most commonly an IPO). Pre-IPO investors invest toward the later stages of a private company’s funding history. Pre-IPO investors typically do not participate in funding rounds (i.e., they are not primary investors who are investing directly into the company). Instead, Pre-IPO investors acquire ownership in these late-stage private companies through the private secondary market where existing shareholders, such as employees or early investors, sell their shares to Pre-IPO investors.

Why it Matters

The Pre-IPO investment arena surged in popularity throughout the 2010’s as a result of companies remaining private for longer periods (as compared to previous decades). This trend created two issues: 1) shareholders found themselves illiquid much longer than anticipated. Early employees seeking liquidity with their appreciating, highly valued shares had no marketplace to sell their shares. Early investors, such as angel investors and earlier-stage VC firms, also found it difficult to seek liquidity, whether to realize profit from substantial private market growth and / or to free up liquidity for other early-stage investments, and 2) accredited investors with an appetite for exciting, rapidly growing private companies had no marketplace through which to access them. These pain points were the catalyst for the emergence of the private secondary market, which allowed shareholders to free up liquidity by offering their shares to other investors. The rise of this market provided access to some of the most sought-after multibillion-dollar private companies to a much wider base of investors (both institutional and individual).

In the early 2010s, major companies like Facebook (NASDAQ: FB), Twitter (NYSE: TWTR) and Spotify (NYSE: SPOT) rose in popularity and were the top Pre-IPO investments of the era. By the late 2010’s, other large, private companies experienced a surge in Pre-IPO demand as well. These brands included Uber (NYSE: UBER), Pinterest (NYSE: PINS), Palantir Technologies (NYSE: PLTR), Airbnb (NASDAQ: ABNB), WeWork (NYSE: WE) and Coinbase (NASDAQ: COIN). The demand grew as more companies saw a need to offer liquidity to their private shareholders.

Currently, there are more “unicorns” (privately-held companies with a valuation of at least $1 billion) than at any other point in history. Some of these valuations have certainly been earned / warranted, but there are a fair number of these companies that will inevitably experience valuation decreases. WeWork offers a cautionary tale: a company being dubbed a unicorn does not guarantee a successful investment. In 2019, WeWork was valued at $47 billion. After a series of public mishaps that concluded with the termination of founder & CEO Adam Neumann (not to mention a questionable business model), WeWork’s valuation dropped precipitously to less than $10 billion. As of early 2022, WeWork’s valuation stands at approximately $6 billion.

The WeWork example (and others like it) is precisely why The Spaventa Group (“TSG”) spends countless hours and resources on valuation analysis, research and exhaustive due diligence. In combination with the knowledge gained through our extensive institutional network, we are able to pinpoint the opportunities that we believe will generate significant returns for our clients.

How to Get Involved

The Spaventa Group conducts extensive research and due diligence on the late-stage, private company ecosystem. Based on proprietary valuation analysis and our internal investment metrics, we arrive at an investment thesis on many different companies, and ultimately select what we believe are the most attractive investment opportunities for our investors. TSG then acquires interest in these companies by: 1) directly purchasing shares from a selling shareholder(s), or 2) indirectly purchasing shares via interest in a private investment fund that owns the shares. Regardless of the acquiring method, the private company interest is held within the TSG portfolio, and is offered to both new and existing clients via our family of funds.

If you are interested in investing in venture capital, you can contact TSG via phone or email. The investment process itself is easy and efficient:

1. Speak with TSG Investor Relations: a member of our Investor Relations team will have a conversation with you to gain a greater understanding of what you are looking for. Our IR team will also verify your accredited investor status. If you are not accredited ($200,000 annual income OR $1,000,000 net worth excluding primary residence OR $300,000 annual income jointly with a spouse), you do not qualify and cannot invest in one of our investment funds.

2. Opportunities: you will be provided access to our secure data room to view offering material; you will be required to attest to your accreditation and sign an NDA in order to view the data room. A professional representing our general partnership, or a professional contracted with our investment fund(s), will be in contact with you.

3. Indication: if you decide to proceed with an investment, you will need to complete subscription documents and state your desired investment allocation. As a reminder, our firm conducts business with individuals as well as entities such as trusts, corporations, LLCs, and self-directed retirement plans.

4. Capital Call: your capital call (the funding required to meet your investment commitment) will be provided to you with your subscription documents. Capital call due dates will vary from fund to fund.

5. Funding: after sending the completed subscription documents, you must fund your investment via check or wire transfer. TSG’s fund administration will confirm receipt of your investment funds as soon as we receive them.

6. Online Access: our fund administration will set you up with online access so you can access all of your documentation directly through our LP portal (located on our website).

7. Confirmation: our fund administration will then upload a document confirming your investment directly to your online LP portal (typically within 48 hours, but this can vary depending on the fund).

8. Relationship: TSG will keep you abreast of any significant developments with your investment(s) as we continue to strengthen our relationship.

Why The Spaventa Group

The Spaventa Group is a leader in the Alternative Investment space and has built a stellar reputation as one of the top firms in the industry. TSG is highly selective and analytical, and conducts exhaustive due diligence on every investment selection. We take pride in the level of white glove service we provide and strive to establish lifelong relationships with our clients. We understand that the only way to maintain long-term client relationships and extend our reach through client referrals is to stand out when compared to all other investment firms and professionals (not just those in the Alternative Investment space). We recognize that both existing and prospective clients alike must have trust and confidence in us. We know that you expect full transparency and open dialogue throughout our relationship, and we always strive to outperform your expectations.

We look forward to establishing and maintaining a relationship with you.

Before investing you should consider: (1) Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. (2) conduct your own investigation and analysis; (3) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (4) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and are willing and able to accept the high risks associated with private investments. Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by TSG or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment. Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest.

There is no assurance that any of the companies we invest in will go public soon, if ever, nor are there any assurances that the securities of those companies will become publicly traded or unrestricted. Private investments are not appropriate for all investors. This asset class involves a high degree of risk, volatility, and illiquidity, beyond that associated with traditional asset classes. Investors should have the financial ability and willingness to accept the risks (including, among other things, the risk of loss of their entire investment and the lack of liquidity) that are characteristic of these types of investments. Investors should consider private investments a supplement, comprising a modest portion of an overall investment strategy. Investors are solely responsible are advised before making an investment decision with respect to any of TSG offerings to review carefully the respective offering documents (including any relevant underlying agreements), and the related subscription documents regarding the investments and are responsible for performing such due diligence as deemed appropriate, including consulting their own legal, tax, ERISA, and financial advisers. Any information provided by TSG and its affiliates should not form the primary basis of the investment decision. This material is based upon information TSG believes is reliable. However, TSG does not represent or warrant that it is accurate, complete, and/or up-to-date.

TSG does not accept any responsibility to update any opinion, analyses or other information contained in the material. This material is for your general information only and solely to assist you in deciding whether to proceed with a further investigation of the investments. It is not an offer or solicitation to buy or sell any security, which can be made only through the delivery of formal offering document(s) which include, among others, a confidential offering memorandum, limited liability company operating agreement, subscription agreement, and related subscription documents. Such formal offering documents contain additional information not set forth herein, including information regarding certain risks of investing, which such additional information is material to any decision to invest in the securities.

Performance may fluctuate, especially over short periods. In this Website, performance results may be shown net of all fees and expenses (such as transaction costs, management, performance, administrative and any other fees and expenses applicable to TSG) and may reflect the reinvestment of dividends and other earnings.

TSG relies on information provided by the issuer and/or target company as part of its responsibility. Additionally, TSG will exhaust all resources in the public domain to obtain the most current and accurate information available. TSG will perform industry comparables to ensure proper valuations. No representation is made that any investor will or is likely to achieve results comparable to those shown or will make any profit or will be able to avoid incurring substantial losses. The past performance of TSG, its principals, partners, or employees, or any of the assets referred to herein is not indicative of future returns. Performance results are generally net of applicable fees and reflect reinvestment of profits. Investment returns will fluctuate and may be volatile, especially over short time horizons.

TSG’s investment strategy involves investments for which no public market exists. Little public information exists about many of these investments, and TSG will be required to rely on its diligence efforts to obtain adequate information to evaluate the potential risks and returns involved in these investments. Therefore, the greater risk that TSG may invest on the basis of incomplete or inaccurate information may adversely affect TSG’s investment performance, which could impact both initial and ultimate valuations. This could subject TSG to greater risk than investments in established publicly-traded companies or businesses and negatively affect TSG’s investment returns.

TSG may not be able to secure shares in some or all of the securities that have been targeted for purchase. If the shares are not accessible, TSG will not be able to execute their investment strategy. There is no assurance that TSG’s diligence efforts will result in an investment being successful. There is no guarantee that TSG will be successful in achieving TSG’s investment objectives. An investment in securities offered by TSG contains risks, including the risk of complete loss. Any performance reflected herein is estimated, is based on incomplete information and is subject to change. Actual results, when available, may differ. Given the nature and number of companies underlying these securities, securities offered by TSG should be considered a more volatile and risky investment. The returns for assets offered by TSG have not yet been audited and may change as a result of the audit.

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