Selling a pre-IPO is more difficult than buying
When an investor enters a pre-IPO, they are often shown a growth outlook. But the issue of exit is usually left in the shadows: “we’ll sort it out later.” This is when the real test of the deal begins - because liquidity in private assets almost never comes automatically.
Secondary market, tender offer and waiting for an IPO are the three main scenarios, but each has its own conditions, discounts and restrictions. And the sooner an investor realizes that he is not in control of the timing of his exit, the less likely he is to confuse potential returns with the convenience of selling.
How real exit scripts work
The Secondary market gives a chance to sell a share to another private buyer, but almost always with friction: the price may be lower than expected, the transaction may take a long time, and the demand itself may be much narrower than it seems from the advertising description.
A tender offer looks more civilized: a company or a major participant buys shares from employees and early investors. But you can’t relax here either - the window is limited, the conditions are set not by the market, but by the one who decides who to enter into the transaction.
An IPO also does not guarantee a beautiful exit. The company may go public later than the investor expected, or the listing may take place at a bad market moment, and then liquidity will turn out to be formal rather than profitable.
Things to check before logging in
Look not only at the company, but also at the documents: are there any restrictions on resale, who has an advantage in repurchase, how is the ownership structure structured, is there a real demand for secondary and how plausible is the exit scenario?
A good pre-IPO deal doesn't shy away from answering the question “how do I get out of here?” If there is no answer, the investor is not buying an asset, but the hope of a convenient market in the future.
Where the liquidity idea most often breaks down
The problem is usually not that there is no way out of the deal at all. The problem is that the investor realizes too late how expensive this exit can be: in terms of time, in terms of discount and in terms of the number of approvals.
The closer the transaction is to the real secondary market, the more important it is not to dream about the price, but to look at the demand, restrictions and conditions of the specific buyer. Otherwise, a beautiful asset can easily turn into a very slow sale.
Why an honest analysis of liquidity is more important than expectations
In private transactions, liquidity is not a fancy word, but a real part of the value of an asset. If it is not there or it is weak, the investor actually has to factor it into the price right away, rather than find out along the way.
This is why a good pre-IPO article should not promise a convenient exit, but explain why an exit might be expensive and slow in the first place.