Private Market Investing Explained: How Retail Investors Can Access Pre-IPO Opportunities

By Joel Shulman

For decades, investing in private companies was largely reserved for venture capital firms, institutional investors, and accredited individuals. Today, investors have more opportunities than ever to gain exposure to private markets, including some of the world’s most innovative companies before they go public.

What is private market investing?

Private market investing refers to investing in companies whose shares are not traded on public stock exchanges. These businesses may be startups, late-stage private companies, or firms preparing for an eventual initial public offering (IPO). Unlike public stocks, private investments are typically less liquid, less transparent, and often require investors to hold their positions for several years.

Can retail investors invest in private companies?

One of the most common questions investors ask is whether retail investors can invest in private companies. The answer is increasingly yes, although access remains more limited than in public markets. Retail investors can gain exposure through specialized funds, private market platforms, interval funds, and certain exchange-traded funds (ETFs) that hold stakes in private companies. In many cases, direct investments still require accredited investor status, but new investment vehicles have expanded access significantly.

The rise of pre-IPO investing

Another growing area of interest is pre-IPO investing. Investors are often attracted to companies that have achieved significant scale and growth before going public. In some cases, private shares become available through secondary markets, tender offers, or funds that purchase stakes from existing shareholders.

Can retail investors participate in pre-IPO investments? While opportunities remain limited compared with institutional investors, the answer is increasingly yes. Several funds and investment platforms now provide indirect exposure to private companies that may eventually pursue an IPO.

What happens to pre-IPO shares after the IPO?

Investors should also understand what happens to pre-IPO shares after an IPO. Typically, private shares convert into publicly traded shares, although investors holding these shares may be subject to lock-up periods that restrict immediate selling. Once these restrictions expire, these shareholders can generally sell any or all of their holdings on public exchanges like any other publicly traded company.

Risks of investing in private companies

Of course, investing in private companies involves meaningful risks. Valuations are often less transparent than those of public companies. Financial information may be limited, liquidity can be constrained, and investment timelines may be measured in years rather than months. Some private companies never reach or pursue an IPO or acquisition.

Despite these risks, investor interest continues to grow. Much of this value creation may present growth opportunities, accompanied by significant risks. As a result, investors are increasingly seeking exposure to innovative businesses earlier in their growth journeys.

Where pre-IPO interest is concentrated today

Many investors may also wonder about pre-IPO opportunities today. While specific opportunities change constantly, recent coverage of areas such as artificial intelligence, cloud infrastructure, fintech, cybersecurity, defense technology, and space technology continues to attract investor attention. Companies operating in these industries often remain private longer than in previous decades, creating substantial demand for private-market access.

Why this matters for portfolio construction

The growth of private market investing reflects a broader shift in how investors think about portfolio construction. Rather than relying exclusively on public stocks and bonds, investors are increasingly exploring private assets as a way to gain exposure to innovation, diversification, and long-term growth opportunities.

The takeaway

As access expands, investors should approach private markets with both optimism and discipline. Understanding liquidity constraints, valuation risks, and investment horizons remains essential. For those willing to accept these tradeoffs, private markets can provide access to compelling growth stories before they reach public exchanges.

FAQ

Can retail investors invest in private companies?

Increasingly, yes. Access remains more limited than in public markets, but specialized funds, private market platforms, interval funds, and certain ETFs that hold stakes in private companies now provide indirect exposure for retail investors. Direct private placements typically still require accredited investor status.

What is pre-IPO investing?

Pre-IPO investing means buying shares in companies that are still private but may eventually go public. Private shares can become available through secondary markets, tender offers, or funds that purchase stakes from existing shareholders.

What happens to pre-IPO shares after the IPO?

Pre-IPO shares typically convert into publicly traded shares. Holders may be subject to lock-up periods that restrict immediate selling. Once those restrictions expire, shareholders can generally sell on public exchanges.

What are the main risks of private market investing?

Less transparent valuations, limited financial information, restricted liquidity, multi-year holding periods, and the possibility that a company never reaches an IPO or acquisition. Private investments are speculative and may not be suitable for all investors.

Disclosures:

Investing involves risk, including possible loss of principal. Private market investments are speculative, illiquid, and may not be suitable for all investors. Access to private investments is often limited to accredited investors and may involve significant restrictions. ETFs with exposure to private companies may face additional risks, including valuation uncertainty, limited liquidity, and structural constraints. Past performance is not indicative of future results. This material is for informational purposes only and should not be considered investment advice or a recommendation.

Joel M. Shulman, PhD, CFA, is CEO and CIO of ERShares and the architect of the Entrepreneur Factor® and ERShares’ VC lens investment framework, which applies venture-style research principles to public-market investing.