How and why investors seek out private market opportunities

You’ve probably heard of StartEngine Private, our investing portal providing accredited investors exposure to some of the most popular pre-IPO companies like Perplexity, Discord, and Fanatics.¹

This wouldn’t have been possible just 12 years ago.

In this piece, we’ll explore why institutional investors and ultra-high-net-worth individuals have long recognized the potential of private investing opportunities, and how a recent major shift for the  asset class has made this accessible for everyday investors.

The following content is for informational purposes only and does not constitute an offer, solicitation, or recommendation to invest in any securities. Private investments are speculative, illiquid, and involve a high degree of risk, including the potential loss of your entire investment. Past performance is not indicative of future results.

A Brief Overview of Pre-IPO Investing

Buying and selling shares begins long before a company rings the bell on Wall Street. And Pre-IPO investing is just that: private companies raising capital by selling equity in their business to investors.²

Historically, pre-IPO investing was exclusively reserved for two groups: ultra-high-net-worth individuals ($30M+) and institutional investors (multi-billion dollar funds).²

• Ultra-high-net-worth individuals have a net worth that surpasses $30 million. They often employ “family offices” that manage their portfolios and generational wealth planning.³
• Institutional investors collect funds from and invest on behalf of private investors. This includes university endowments, pension funds, and venture capital firms.⁴

Besides better access, these groups can also generally be more risk tolerant than everyday investors. Unlike publicly traded securities, private investments typically lack a secondary market, meaning investors may not be able to sell their holdings for an extended period or at all. Investors should be prepared to hold these investments indefinitely and recognize that liquidity options may be limited or nonexistent.

So why invest pre-IPO? Private markets have historically outperformed public market equivalents.⁵ However, these results are not guaranteed and may not reflect future performance and past returns are not predictive of future outcomes.

According to the Cambridge Associates benchmarks, 25-year returns from the U.S. private equity (13.1%) and venture capital (23.1%) markets outperformed the Nasdaq (8.8%), Russell 2000 (7.9%), and S&P 500 (7.6%) in that timeframe.⁵

Why? Time and patience.

While historical data suggests private markets have outperformed public equivalents over certain periods, past performance is not indicative of future results. Future returns may vary significantly and are subject to multiple factors, including economic conditions, market trends, and individual investment risks.

Pre-IPO investing is risky, with a failure rate of at least 75% among venture-backed startups.⁶ Naturally, an unproven startup will be valued less than later-stage companies that have established revenue, brand value, and other assets.⁷ If they scale, the value of the company — and shares purchased by early investors — will grow as well.

What can happen if an investor backs a successful startup?

In 2010, software executive Mike Walsh was introduced to Ryan Graves and agreed to invest $10,000 in his new rideshare app, “UberCab.” When Uber went public in 2019, Walsh told CNN that his initial investment was worth “tens of millions of dollars.”⁸

*This example is extraordinary and not representative of typical investment outcomes in private markets.

Pre-IPO Options (and Barriers) for Accredited Investors

It is important to note that even accredited investors may face restrictions when investing in private offerings. Regulatory requirements and offering limitations may affect an investor’s ability to buy, sell, or transfer shares, and investment opportunities may be highly competitive and difficult to access.

And of course, most people don’t have entrepreneurs inviting them to invest in the next tech unicorn. In fact, outside of a “friends and family” round, everyday investors have historically been excluded from pre-IPO investing entirely.

That radically changed in 2013, when the SEC announced that companies could now raise capital from accredited investors.⁹ An investor qualifies as accredited if they meet certain criteria.¹⁰

Financial Criteria

• Net worth $1M+
• Individual income $200K+
• Household income over $300K+

Professional Criteria

• Investment professionals in good standing with certain licenses
• Senior officials connected to the offering company
• “Family clients” of an accredited “family office”
• “Knowledgeable employees” of the fund

And yet, while the SEC opened up access, there are still barriers to entry for many accredited investors.

For starters, there are only so many shares to go around.

With each subsequent funding round, a successful company will likely attract interest from VC firms, private equity investors, and other financial institutions — in addition to the investors already on their cap table.¹¹ Most companies will probably choose Andreessen Horowitz over your average accredited investor.

Even if you get your foot in the door, the price of entry can be steep.

According to VC intelligence firm Foundational, the minimum check for a typical seed fundraise is $400,000. By the time a company reaches their Series B round, that number can jump to $5 million.¹²

Democratizing Exposure to Top Private Companies

Our team believed there was a market for exposure to some of the most popular private venture-backed businesses.

We launched StartEngine Private in Q4 2023 and have since  offered exposure to companies like Databricks, Groq, and Perplexity that are backed by established VCs and institutional investors. These offerings are conducted pursuant to Rule 506(c) of Regulation D and are only available to accredited investors.

The difference? Our investment minimums can be as low as $10,000 —not the seven-figure minimums often required to buy into venture-backed deals.

We aim to provide broader access to venture-backed deals through our platform. Of course, investors should understand that private investments remain subject to availability, regulatory requirements, and associated risks.

While our minimum investment thresholds are lower than traditional venture capital rounds, investors must still recognize the inherent risks of pre-IPO investments. Investing in private securities carries significant risks, including but not limited to illiquidity, lack of dividends, dilution, and potential loss of principal. These investments are not suitable for all investors. Always conduct your own due diligence and consult with a licensed financial professional before making any investment decisions.

To learn more about how these offerings are structured — and to review full risk disclosures and other important information — please visit startengine.com/private.

1. The underlying companies held by StartEngine Private Funds LLC, and StartEngine Private LLC (together, “StartEngine Private”) are not participating or involved in the offering. The availability of company information does not indicate that the company has endorsed, supports or otherwise participates with StartEngine Private or any of its affiliates. StartEngine Crowdfunding LLC purchases shares from current and former employees, early investors, and advisors of the companies and sells the shares to StartEngine Private for each offering. When you make an investment in a company on StartEngine Private, you are purchasing an interest in a series of StartEngine Private Funds LLC or StartEngine Private LLC, each a Delaware limited liability company (together the “Series LLCs”), which were created to hold shares of privately held companies. An investor will not directly own or hold shares of the private company but instead will own member interests in a series of the Series LLCs, which either directly or indirectly, will hold shares in the company. There may not be a one-to-one economic parity on the value of the Series LLCs interests and the underlying shares.

2. SBI Securities, “What is Pre-IPO? How does it work & Can I Invest?,” July 1, 2024

3. Sam Lipscomb, “Defining an Ultra-High-Net-Worth Individual,” SmartAsset, October 25, 2024

4. CFI Team, “Institutional Investor,” Corporate Finance Institute, Accessed February 24, 2025

5. Caryn Slotsky, Drew Carneal, Wyatt Yasinski, “US PE/VC Benchmark Commentary: Calendar Year 2023,” Cambridge Associates, August 2024

6. Elizabeth Pollman, “Startup Failure,” Harvard Law School Forum on Corporate Governance, September 29, 2023

7. Fridman Law Firm, “How Much Do Seed Rounds Cost?,” September 2024

8. Source: Seth Fiegerman, “Uber’s First Investors Open Up About Their Wild Ride,” CNN, May 10, 2019

9. The U.S. Securities and Exchange Commission, “Eliminating the Prohibition on General Solicitation and General Advertising in Certain Offerings,” July 10, 2013

10. Source: The U.S. Securities and Exchange Commission, “Accredited Investors,” Accessed February 14, 2025

11. Andrius Ziuznys, “Complete Guide to Startup Funding Rounds: Seed, A, B, and C,” Coresignal, April 2, 2024

12. Dylan Penn, “Determining Your Target VC Check Size,” Foundational, Accessed February 24, 2025
 

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