Before a private company goes public in an initial public offering (IPO), they might set aside a few shares to be purchased in what’s known as a Private Equity Offering or Private Offering.
One can make a lot of money from pre-IPO stocks, but the risks are also significantly higher, and either way, it’s not easy to get your hands on these early-bird share offerings.
A PreIPO stock is a stock sold just before the issuer’s IPO, in that it’s an opportunity for investors to buy shares of a company for the first time, but it differs in that you’re still investing in a private company, not one that’s just become public. In fact, there are no guarantees that a PreIPO will ever actually go public.
Since pre-IPO investments are typically offered in large blocks of shares, most of this type of investing is done by private equity firms, hedge funds, and big investment banks. Pre-IPO shares are also subject to a lockup period, which prevents buyers from establishing a secondary market in which they could sell their shares right away to make a short-term profit.