What Investors Need To Consider

Bhaskar Ahuja, CEO of investment firm Sand Hill Road Technologies Fund, is a venture growth strategist helping startups and investors scale.

Not too long ago, access to high-growth private companies was limited to a select few—primarily institutional investors, elite venture firms or insiders close to the founding team. For everyone else, the public markets were the primary window into innovation at scale.

But I believe something fundamental has shifted. Over the past decade, companies have been staying private longer. On average, companies are now more than 10 years old and reach valuations exceeding $1 billion before their initial public offering (IPO), according to Nasdaq. That means by the time they go public, much of the explosive value creation has already happened—and it happened behind closed doors.

I’ve noticed this change is fueling an investment vehicle called “pre-IPO investing,” which falls in between early-stage venture capital and old-fashioned public equities. As the CEO of a fund that provides access to late-stage private technology companies, I’ve been able to observe how some investors are shifting their interest toward this segment.

The Growth Of The Secondary Market

What once was a whisper network among VCs and early employees has now evolved into a formalized, growing secondary market. Secondary markets allow investors to buy equity from existing shareholders in late-stage private companies—typically founders, employees or early investors looking for partial liquidity. In return, new buyers can potentially gain access to companies that are 12 to 36 months away from a potential IPO, acquisition or strategic exit.

What might make this attractive to investors now? In my view, a few factors are making pre-IPO investing both more relevant and more accessible.

1. Private companies are staying private longer.

A decade ago, companies like Amazon and Google went public relatively early in their growth cycles. Today, firms like Stripe, SpaceX, OpenAI and Canva are multi-billion-dollar companies that remain private. At the time of this writing, there are more than 1,400 “unicorns” globally, many of which rely on venture capital funding. The result is that a significant portion of value creation now happens before the IPO. Investors who rely solely on public markets could miss out on early phases of a company’s growth. Pre-IPO access via secondaries can offer a bridge to that opportunity.

2. Valuation resets have created attractive entry points.

The 2022 to 2023 market correction forced many late-stage companies to reassess their valuations and optimize their burn. From my perspective, the inflated pricing of the previous cycle gave way to more disciplined, capital-efficient businesses. For investors who can access these companies at revised, more reasonable valuations, the risk-adjusted upside today may be more compelling than during the last bull run. At the same time, employees and early investors may seek liquidity before an exit, especially in a tighter IPO window, which can further fuel the secondary market.

3. Pre-IPO investments are buffered against public market volatility.

Unlike public equities, pre-IPO investments are not marked to market daily. They are insulated from short-term sentiment shifts, news cycles and earnings pressure on a quarterly basis. For long-term investors, this can provide the ability to participate in strategic growth without emotional turmoil from the public markets.

Evaluating Pre-IPO Investments

However, investors need to remember that not every private company is worth buying just because it’s big, has celebrity investors or has the best marketing teams. Pattern recognition is key.

When evaluating pre-IPO opportunities, I look for companies with strong financial visibility—those showing consistent revenue growth, healthy gross margins and a clean cap table. A clear exit horizon is critical to me as well. How many months until the company is planning for a potential IPO or acquisition? For me, the ideal window is 12 to 36 months.

Liquidity matters too, so I look for signs of active interest from both buyers and sellers in the secondary market. Furthermore, institutional validation can be a valuable signal. When a company has top-tier venture firms or strategic investors on the cap table, this can indicate that experienced players have done their diligence and believe in the company’s long-term potential. (But remember that you still need to do your own due diligence; as noted above, this isn’t the only factor you should consider.)

And finally, disciplined governance is non-negotiable: I look for audit-ready financials, an experienced CFO and operational maturity that shows the business is ready to operate under public market scrutiny. In short, it’s not about size alone; it’s about identifying companies that are truly prepared to be public.

Recognizing Risks And Maintaining Caution

Investors must remain vigilant. Investing in pre-IPO companies requires caution and awareness of several specific risks.

First, valuation can be a significant concern. Valuations of private firms can lack transparency and are often prone to subjective judgment, sometimes driven by market hype rather than fundamentals. Overestimating a company’s worth can dramatically affect returns when a liquidity event eventually happens.

Another area of caution is liquidity. Although the secondary market for private company shares is expanding, it can still lack sufficient depth, making it difficult to sell positions quickly.

Additionally, investors must remain alert to market timing risks. Companies often delay IPOs due to unfavorable market conditions, regulatory hurdles or internal issues, potentially prolonging investors’ holding periods beyond initial projections. Confirming that a company is genuinely ready for public-market scrutiny, both operationally and culturally, is crucial.

Final Thoughts

Public markets used to be where innovation met opportunity. Today, much of that opportunity happens before the ticker symbol ever appears. For investors willing to do the work, cut through the noise, understand the mechanics and account for the risks, the secondary market may offer access to tomorrow’s market leaders today.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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