What is Pre IPO Pre IPO can be defined as a method used by companies to procure capital by selling a large amount of shares/stocks before it has actually been publicly traded in some exchanges to private investors, hedge funds, HNIs, etc. and also it has no prospectus available when the sale takes place.
Who sells Pre IPO Shares? An increase in dealings in Pre IPO means that founders of the company, employees holding ESOPS, and private investors are gaining liquidity in a shorter span of time as compared to the earlier company life cycles. Quite frequently, start-ups and privately-held companies face the liquidity crunch because of the absence of the market, enabling them to sell shares and/or transfer obligations that may obstruct the sale.
Thus Pre IPO investments are an answer to the above problem. Private investors who look for fruitful companies make their profit based on the discounted issue of shares by the issuing company. Companies also use this capital raised as a backup for unforeseen circumstances during IPO issues or unexpected trading volume with the IPO.