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Pre-IPO Investing: Expert Advice for the professional investor by Finance Guru, Len McDowall
This article check out the pros and cons invest in what is called Pre-IPO capital.
What is the pre-IPO capital? Well, it's just that, the capital that arises before a IPO.
So to clear things up, an IPO, or initial public offering, refers to when a company is about to list of the stock market, and has a brochure to attract funds from investors. The amounts claimed vary greatly depending on the size of the company and the need for capital. So if you invest in an IPO, the prospectus is obtained through an agent or online, fill out the application form and post it in the long with a check. About 3-4 weeks after company lists and you receive immediate actions that can be sold if desired.
You are usually limited by the maximum number of shares that can subscribe. It can be $ 10,000 for example. There will be a minimum subscription. This varies from float to float course.
The other thing that is common with an IPO offering is that there is a definite time period in which you must respond. - Usually around 3 weeks. This allows the company and its agent to coordinate the exchange float. It also creates the urgency for investors giving a deadline in which to make a decision.
The footings in the Pre-IPO ...
Pre-IPO is very different from this, although it sounds similar. Pre-IPO rises from 3 months to 18 months prior to admission to trading on the ASX. It is usually done without a prospectus and in most cases is done at a time when there is a stock broker on behalf Company or subscription of the float.
At the level prior to the IPO, there is no guarantee that the company will make to the current IPO, so the price of the action is, or what agent will. In addition, because it can take up to two years before the company fleet, your money is more or less bound until then.
As you can see, there is greater risk. To reflect this, before the IPO are usually sold at a considerable discount to the IPO price provided. For example, if Company X believes that going to list $ 1, may offer shares in a pre-IPO capital increase to $ 0.25. If they finish the list of $ 1, you make four times over their money in the IPO.
Most investors have never even heard of investment opportunities before the IPO. This is because only commonly marketed to wholesale investors, high net worth individuals, professional investors and investment funds. So to gain exposure to one, sort of need to know the right people. Even high net worth individuals do not often get exposed to opportunities for pre-IPO, simply because they are not connected to the company or agent / advisor of supply management.
Most opportunities are limited to "wholesale" investors But opportunities are limited sometimes available to some "minor" to investors.
The key strategies to reduce the risk of investors IPO opportunities in the Pre ...
No security is to invest in pre-IPO opportunities. Just because there are many factors that can prevent the firm to achieve the stock market. So the key is to invest in companies that are fairly close to listing. Some of the indicators for this are:
• list of estimated timing indicated in the document Information Memorandum (ideally within 12 months)
• Board of Directors in place
• CEO in place
• Key management and staff in place
• Lead officer in place (or at least in the pre-selection)
• Legal team in its place (IPO)
• Accountant in force (IPO)
• Advisor in place (IPO)
• Financial projections completed
• Profitable
• clearly defined market opportunity
• Structure of the capital stock in place
• entry level set value
You do not need all the above criteria is checked, but reduced the more the better, since each criteria risk to you, the investor.
How do you know that the company will join a list? The short answer is no. Even some IPOs have been withdrawn in the last minute. The fund is to invest in Pre-IPO is risky, so make sure you invest only what you can afford to lose. And only invest a maximum of, say, 10% of its investment portfolio.
However, when they work, the returns can be quite staggering. I know of a recent float where pre-IPO investors buy at $ 0.10 per share, less than four months before the IPO. The company floated at $ 0.20 and a period of six months, stocks rose more than $ 0.60. That's six times their money within a year. However keep in mind that this was relatively speculative and investors before the IPO could only easily have been left holding the stock for a couple of years.
In terms of due diligence, it is prudent to spend about 20 minutes phone with the CEO or, better yet, meet with them. Get to answer any questions you have about the company and its ability to fulfill its promises. If you is investing $ 100,000 or more, is time well spent. If you were to spend a similar amount on a car, I'm sure it would take around the block a few times so be sure to do some homework when looking at a pre-IPO investment.
So how do you get access to pre-IPO opportunities? Talk meet with your agent or a consulting firm that specializes in raising capital before the IPO. Occasionally, you will also be announced in the Analysis financial (www.afr.com.au). It is free to investigate and even if you do not invest, it is good to have an idea of this type of investment before writing a check.
© McDowall Len, Integral Capital Group
www.integralcapital.com
About the Author
Len McDowall was previously inaugural Chairman and Managing Partner of Bird Cameron, Chartered Accountants, (now know as RMS Bird Cameron) which employed 1000 people in 50 offices in Australia and Hong Kong. Len established Bird Cameron's mergers and acquisitions division in 1987.
Len McDowall has extensive experience in all facets of financial management with a particular emphasis on structuring and negotiating joint ventures and capital raisings. Following his retirement from the accounting profession Len and his partners established the Integral Capital Group. Len specialises in mergers and acquisitions, public floatation's, the creation of financial management strategies and capital management, and has successfully completed hundreds of transactions in these fields.
Leonard McDowall founded Integral Capital Group in 1990. Specialising in the Australian capital markets, Integral Capital Group serve predominantly sophisticated investors, private and public companies delivering a broad range of services including Stock Exchange listings; Mergers, acquisitions and divestments; Capital and debt raising; and pre-IPO offerings.
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