In a pre-IPO context, the question that matters most is whether the price you’re paying today is likely to be lower than the price you can sell for after the IPO, and after any restrictions on your stock lift. SpaceX is now publicly traded, but we aren’t liquid yet. Restrictions are making us hold the stock longer.
So our analysis starts there. With Scale, for example: is the price per share lower than what we think we can exit at after it goes public? Business growth matters, but much less. There are many cases where a company has peaked, never really rises further, goes public, and investors still make a lot of money. It’s the spread that matters most, though you still want to see a growth rate.
Key points
- Ask whether today’s price is below the likely post-IPO price.
- Factor in lockup restrictions, which can delay selling, as with SpaceX.
- Growth matters, but the private-to-public spread matters more.
- Many people overpay for pre-IPO deals by ignoring this.
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