521: How to Buy Stock in Companies Before They Go Public

I’m not a big stock guy. However, there are some companies out there that you know are just going to change the world, and it would be nice to be able to own part of them—especially before they go public.

That’s why this week on Wealth Formula Podcast we’re diving into a topic that’s been on my mind for quite some time: the world of pre-IPO investing.

If you’ve ever felt like by the time a company finally hits the public market it’s already ballooned in value and you’re basically buying in at a premium, you’re not alone.

I personally had my eye on a company called Circle, which deals in stablecoins. As I’ve talked about on the show before, I think it’s going to be huge globally.

But as soon as Circle went public, the valuation shot up to a point where I felt like it was way too expensive to jump in. If I had access to those shares before the IPO, I would have definitely taken the plunge.

Now, this isn’t just about one company. We’ve seen this story play out with others, and right now there are some major game-changers like SpaceX on the horizon.

SpaceX, one of Elon Musk’s ventures, is one of those companies you just know is going to have a massive impact.

But how do you get access to those deals?

If you’re an accredited investor, I have good news. Getting a piece of the action before these companies go public isn’t just for the ultra-wealthy insiders anymore.

It’s becoming more accessible to accredited investors who want to get in earlier and potentially see greater upside.

That’s the topic of this week’s Wealth Formula Podcast.

Transcript

Disclaimer: This transcript was generated by AI and may not be 100% accurate. If you notice any errors or corrections, please email us at [email protected].

 If you are purely investing in the public markets, in many cases, you’ve missed the majority of a company’s growth cycle.

Welcome everybody. This is Buck Joffrey Wealth Formula Podcast, coming to you from Montecito, California today. Before we begin, as I always do, I will suggest you visit wealthformula.com, which is the, um. Primary Home of Wealth Formula podcast, and it’s also where you can get some resources outside of the podcast, including access to our accredited investor club, otherwise known as investor Club.

Uh, that is where you can get, if, if you aren’t an accredited investor, you can get access to opportunities that you would not otherwise see because they are not available to the general public. Um, speaking of. That kind of investment that’s not typically, uh, available to the general public. Uh, that takes us sort of to the topic of today’s show.

That is, um, well, you see, I’m not a big stock guy, as you probably know, if you’ve listened to this show before, I’m not, you know, listen, I’m not anti stock. It’s just not, you know. Generally what I’ve invested in my life. However, there are some companies out there that you just know are going to change the world, and because of that, it’d be nice to potentially be able to own part of them, you know, especially if they, if before they go public.

That’s why this week on Wealth Formula Podcast, we’re gonna dive into a topic that’s sort of been on my mind for some time. The world of what’s called pre IPO investing. Basically investing before a stock goes public. Now, if you’ve ever felt like by the time a company finally hits the public market, it’s already ballooned in value and you’re basically buying at a premium, you’re not alone.

Again, this is not something I do often, but I had, um, as you know from my previous shows, I believe heavily that this whole world of stable coins is going to be enormous. And I had my eye on a company called Circle and then trades with CR Cl, uh, which deals in stable coins, uh, which is a, a really big player in stable coins.

I think this is gonna be huge. Uh, but as soon as Circle went public, the valuation shot up, like just took off where it was kind of ridiculous and. At that point, basically it was just too expensive to jump in. It just didn’t make any sense. Now, if I’d had access to those shares before the IPO, and if it, you know, started where it actually started, I definitely would’ve taken the plunge and I actually would’ve made a lot of money.

But that didn’t happen. Now, this isn’t just about one company. We’ve, you know, seen this happen several times, uh, before people know there’s this big private company that, you know, all the. Insiders are gonna make a bunch of money on IPO comes bang, they all cash in, right? But there are some out there that are in that pre IPO phase right now, such as SpaceX, um, you know, Elon’s, uh, one of Elon Musk’s companies.

Um, you know, they are out there traveling space. They also own starlink, uh, all that kind of stuff. So, you know, that company’s gonna have a huge impact, at least. I mean, you know, I guess you don’t know for sure, but. Shown us one thing before he, he can, uh, he can build extraordinary companies. So that’s something I would be interested in.

But how do you get access to those deals, right? If you’re an accredited investor, as it turns out, I have good news on this show. Getting a piece of the action before these companies go public isn’t actually just for the ultra wealthy Silicon Valley insiders anymore. It’s actually becoming more accessible to accredited investors who want to get in early.

Potentially see greater upside. So that is a topic of this week’s show, and we will have, uh, that conversation right after these messages. Wealth formula banking is an ingenious concept powered by whole life insurance, but instead of acting just as a safety net, the strategy supercharges your investment.

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Turbocharge your investments visit. Wealth Formula banking.com. Again, that’s wealth formula banking.com. Welcome back to the show, everyone. Today my guest, uh, on Wealth Formula podcast. Christine Healey, she’s founder of Healy Pre IPO. Which is a, uh, boutique brokerage firm that gives high net worth investors access to some of the world’s most exclusive pre IPO opportunities.

Companies like SpaceX, open AI and Stripe long before they hit the public markets. Uh, she’s closed over 600 million in private market deals. Previously held leadership roles at firms like Destiny Tech 100 and Forge Global. She’s built a white glove concierge level service for investors who want insider access to vetted late stage private companies without the corporate red tape.

Welcome to the program, Christine. Thank you, buck. Great to be here. Well, um, let’s, let’s kind of start with, so we have a lot of, you know, retail investors, accredited investors. This may not be something, uh, that, that they know much about. So for investors who only know about public markets, uh, those types of stocks, what exactly is the pre IPO market?

How does it work? So I see a lot of high net worth investors that may hold, um, very skilled professional jobs. They might be doctors or lawyers or small business owners, and they see companies like SpaceX constantly in the news with these amazing milestones. Or they might use open AI’s product chat GBT every day in some cases.

But they’re seeing these amazing technological innovations as a bystander. A lot of them are saying, um, I’ve worked hard to build an amass some wealth. I’ve got a high income. I wish there was a way to actually financially participate in these stocks. Sure. So investing pre IPO is essentially a way to invest in these companies while they’re still private companies in a bespoke privately.

Brokered transaction where you might be matched with a private seller, like an early employee, or you might be matched with an early VC that’s looking for liquidity and you can actually get in before the IPO. So we’ve seen a lot of IPOs recently be very choppy, very volatile. Mm-hmm. In many cases, um, a lot of value in a technology company’s lifecycle is accruing purely on the private markets.

Since these tech companies are waiting longer and longer to IPO in a lot of cases. So if you are purely investing in the public markets, in many cases, you’ve missed the majority of a company’s growth cycle. So what I do is help investors, um, that are accredited to get into some of their favorite companies that, that they love, that they believe in.

Mm-hmm. That they’re inspired by. And to navigate the private market, which is very tricky, in some cases, messy and requires a lot of bespoke, um, process. Yeah. And, and I think, um, one of the things that I have noticed sort of, kind of sniffing around this pre IPO space, there’s obviously a few companies who, who do this and um, you know, one of the questions I always have when I’m looking at it as a retail investor is like.

Yeah, this is an interesting company. I hear about, you know, ripple or I hear about like Circle before it happened. Um, and the issue there becomes like, how in the world do you know if it’s a good price? Because, you know, the valuations, um, that these things are being offered at often look significant, right?

They’ll say the, there’s like a, uh, the last valuation was, you know, uh, literally, you know, half or. 25% of what, what the valuation based on the stock price that they’re trying to sell. How do you possibly navigate through that? I personally believe it’s one of those things where you get what you pay for, and if you actually go the extra mile to hire a pre IPO broker that specializes in this space, one of their core jobs is to help you contextualize pricing.

So I. Um, if you’re getting an offer at a certain price, they’ll help you understand how does this relate to the latest, uh, primary round of the company. But not just that, how does this relate to the market right now in that company to recent deals, to recent bids and offers by other buyers and sellers in this space?

So that’s. That’s really like going in with, uh, you know, an army of information and power and, and support by your side versus going in alone as a retail investor. So I believe that makes a lot of difference. Um, in my personal information, there’s more access to pre IPO than there has ever been, but it’s actually a lot of mediocre access, a lot of, um, unreliable parties, a lot of people that are really new to the market and lack the kind of nuance and experience in reps to.

Perform really well for their clients. And so it, it’s kind of foggy out there and a lot of people that are used to purely public investing, um, will have a really negative experience at first because they don’t even know which brokers they can trust or which platforms, or they try and do a deal, it falls through and they’re so discouraged.

Or like you’re saying, they have no way of contextualizing the pricing they’re seeing. Retail investors are really the most vulnerable to price exploitation or fee exploitation when it comes to these very actively traded names. Um, and so I think that’s what separates really a, a good or a great broker from these run of the mill platforms or crowdfunding, uh, you know, websites.

They’re gonna help you go into a negotiation with a seller, armed with information so you know what you’re getting and you can decide yes or no. I think one of the companies you mentioned was, uh, SpaceX. And it makes me think, uh, it’s obviously one of Elon Musk companies, um, believe it or not, despite, uh, how much we hear about Elon, Tesla is really the only public company and everything else is private.

How do we know Elon’s even gonna go private or go public with his stuff? Uh, you know, I think he, he seems to not necessarily think of it as advantageous. Is that one of the inherent risks in investing, you know, in, in a company, uh, like this, that, you know, listen, you may just not wanna go public? It’s a great question and really yes and no.

So yes, there’s an inherent risk in investing in private stocks that they are less liquid. There’s no shying away from that. But the interesting thing is that. Um, I personally don’t think for the average SpaceX investor, it may matter that much, whether SpaceX does exit in five years or in 10 years. Um, Elon is really the poster child of a, a founder, which historically hasn’t seemed to want to go public.

He’s not a huge fan of operating and, and, and reaching moonshot goals in the public eye. Um, but why I say it may not necessarily matter. Is that as the secondary markets grow and as liquidity grows, um, someone investing in SpaceX today could potentially be able to resell on the private market in, in several years to another private buyer.

Now, of course there’s no guarantee that assumes that there’ll be a replacement buyer in the market when you’re looking to sell. Regulations also require you to buy to be a long-term holder. So typically you wanna be holding for at least six months, but ideally longer to kind of have that, that provable intent to have housed long-term.

But in general, there is the possibility of reselling. Even if the IPO is is still further down the road. So I think that’s when it becomes really, really interesting because you can still invest in SpaceX if you believe in its growth, even if you believe that the IPO might be a decade away, let’s say, or, or even more.

Give us an example of how this has worked out positively for a client. Um, you know, from soup to nuts. Like what process? Somebody came in, they were interested in this, they bought that, and. They went to I PPO companies that went to IPO. I mean, there’s, there’s a number, there’s rubric, there’s Unity, there’s Pinterest, um, there’s, um.

There’s a number. Um, there’s also, ’cause I’ve been in this industry for so long, since 2018, you also see some of the companies that are still private and how much their valuations have grown on the private markets during that time. So there was a lot of investor activity around, um, 20 19, 20 20 in SpaceX, for example, where valuations were below.

Below 50 billion, give or take. Um, and now SpaceX just came out with their new tender, uh, priced at roughly a 400 billion valuation. So there you’re seeing, you know, astronomical growth for companies that are still private and still potentially have growth left in them as well. What have you seen on the other side of this?

’cause obviously there’s risk. You know, these aren’t startups we’re talking about SpaceX and, you know, Stripe or whatever. Uh, but. Compare the risk profile of something like, you know, investing in these pre IPOs versus public stock. Yeah, I mean there, there’s certainly risk. You see cases like 23 and Me, which was actively traded when I first started, um, for MA many years really.

Um, 23 and Me is now going through bankruptcy or liquidation and it’s kind of a mess. Um, you also see companies like FDX, which we’re approaching, I believe $40 billion, and of course completely imploded. So there’s also no shying away from the risk in this asset class. It’s not for everybody. How I see investors dealing with the inherent, um.

Risk around liquidity risks around these businesses, even, even existing, um, in the future is, um, either diversification, which is a natural way to, to manage risk or what’s really common in this asset class is, um, a flight to quality type effect or, or hyper concentration where investors are cutting down their lists of names to ones where they have the highest conviction.

So an investor that’s looking for, um, more of a track record of growth and price marks on a regular basis, that investor might be attracted to SpaceX because they’ve had these tenders that, um, have marked up the stock at, you know, incrementally higher valuations roughly every six months, which is really unique for, um, for a private company.

Or you could have, um, you know, a number of other reasons to look to different companies based on your particular thesis and your profile and what you’re looking to see. Mm-hmm. So would you say that this from a portfolio standpoint for, um, you know, somebody who’s, uh, an accredited investor probably should be in their, I don’t know, maybe an asymmetric risk category?

Yes, I would say so. Yeah. What, um, uh, you know, when you, what’s the process of, actually, I know you said this is from like, people who are trying to get, um, liquidity and stuff. Um, what’s the process of actually finding that from your side, like as a broker? Like how do you find these people? So first I figure out what’s the best fit for the investor.

So one of the main things is size, whether you’re investing at a hundred k, whether you’re investing at a couple million, um, whether you’re, you know, accredited or whether you’re a qualified purchaser, which is a higher level or a qualified investor or, or anything in between. So we’ll look at your particular timeline needs.

Profile, et cetera. Um, and then figure out who to match you to. So typically if you are a more retail investor, maybe you’re trying to invest a hundred k. You’ll end up investing in a, in a fund vehicle where you’re pooled together with other investors to together take down a block that could be a million or 5 million or 10 million.

So that’s what you should really expect when you are, um, coming in at say, a hundred k. You’ll go into some sort of. Fund, you know, for the most part. So I have a network of a ton of different counterparties, and if we’re looking for a fund, that’s where I look at, um, maybe family offices, VCs, specialty secondaries funds that already hold stock from previous rounds or from, maybe they’re getting an allocation in an upcoming primary from the company.

Sources like that. Um, and I, I talk to those parties in the network to see if there’s a relevant opportunity for my buyers. Yeah, so talk us a little bit about your due diligence process. Yeah, it’s important that as a broker, I’m not a fiduciary. I don’t hold that type of role. Um, where I come in is really to help source the deals for people, help them understand the structures, contextualize pricing, um, understand the, you know, the terms and the conditions of the vehicles they’re getting into.

Help them negotiate to see if we can cut fees to see if we can optimize, um, the economics, and then to help streamline closing. So, I. I am actually prohibited from giving too strong a view as to you should buy this or you should not buy this. Mm-hmm. But I can help arm my clients with, um, secondary market information and make sure they are really informed about what they want, about, um, how the pricing compares to other opportunities, and then they can make the decision.

So it’s really important regulatory wise that I’m not too pushy or opinionated, um, but I help my clients in a number of other ways to optimize what they’re already seeking. So you’ve, uh, you’ve closed, I guess 600 million, uh, in private deals. So, you know, what patterns have you seen in the most successful pre IPO investments?

I mean, you know, I know you’re not in a role to be advising per se, but just, you know, as, as an individual who’s, uh, observing this happening real time, what lessons, um, could, would you take away as, as somebody who’s investing in this space? Yeah, that’s a great question. I think in recent years we’ve seen hyper concentration.

So there’s been a very small number of companies like SpaceX, OpenAI, Stripe, Andel, which have accounted for the vast majority of activity. So that can make it tricky if you’re trying to sell an asset that’s outside of this, you know, top 10 or top 20. Um, on the other side, it can also be advantageous if you’re a buyer in a company that is less active, you have a bit more leverage with the sellers.

So it does depend on personal preference. You know, if you’re looking for a less active company and you wanna get a great discount, that’s a great, um, en environment and a backdrop to be in. Um, if you’re looking for. A bit more confidence in terms of future saleability. You might look for a more liquid opportunity, um, in a company that’s historically had a, a very active market like SpaceX.

So personal preference always, but I think one thing that’s important to keep in mind is, is that possibility of selling down the road. So if you are going into a deal today, it’s worth, um, speaking to the broker, speaking to the, the selling investment manager whose fund you’re going into. Do you allow resales?

How would that actually work? Will you charge me a fee if I want to resell in future? Or some of those things, um, or even the terms of what you’re buying. How would that play out in a future, uh, resale transaction? So, for example, um, investments that do not have carried interest or management fees on it, which we call zero zero, are much easier to resell in future.

So as with most things, it’s just kind of thinking through all the details, how they will play out and how. How much, um, autonomy you’d have in future if you, if you wanted to, to do something with that asset. So that can, that can really make the difference really, um, in terms of liquidity down the road, even on the private market still, Phil, you know, I know, again, just going back to the fact that you can’t necessarily give advice, like how do people get, I mean, how do people educate themselves then, like at any given particular investment?

Because again, you know, my limited experience on this is just seeing things on platforms. Getting valuations and such. And again, if you’re not really allowed to say, this is a good deal, this is not a good deal, who do we get that information from? Yeah, I mean, I can’t say this is a great deal, you should do it, but I can flag, um, you know, this is a discount to where recent deals are getting done or, um.

If this is roughly in line with the pricing of recent secondaries or some of that data, so you can kind of put two and two together and, and figure out if that qualifies as a good deal in your opinion. Um, and that’s really it. But one of the main challenges for this type of investing is relatively limited information.

Compared to what public market investors are used to getting. So there’s some amazing companies like Klarna, which just put a lot of information out there publicly for anyone to see in terms of their financials and stuff like that. Yeah. But that’s quite uncommon for these pre IPO companies. You have very kind of private companies like, um, SpaceX, like Open ai, like Impossible Foods, which are very protective about their information and almost never release.

Um. Tangible data points around the financials publicly. So, um, I think that’s why a lot of investors, especially institutions, have held off for quite a number of years on going all in, in this asset class, because you don’t have the same underwriting ability, you don’t have the same analysis, um, due to the, the limited information.

But on the other side, you see. Some really interesting success stories, um, in terms of gains and, and the wins. And now a lot of institutions and investors are saying, well, this might be a different process than I’m used to for public investing, but I’m gonna have to figure out a process around these, these private companies because I don’t wanna miss out.

So you can look to, like I mentioned, secondary market data. You can look at what the caliber of, um, institutions that have got involved. You know, do they have, um, tier one VC backers, um, all that kind of stuff. How has their momentum been in terms of funding rounds, in terms of tenders, et cetera, on a number of other data points, which helped.

Create a picture where otherwise we don’t have as much of a a data picture as you’d see with a publicly reporting company. What are some of the most interesting companies out there right now, in your opinion, that are in the space? You mentioned SpaceX. I’m relatively specialized in the sense that, you know, if the market itself is specialized in 10, 15, 20 names, that’s where I’m gonna focus my time as a broker.

So I spend a lot of time in names like Andal, Neuralink, SpaceX, OpenAI, Stripe, anthropic, um, and several others just based on where the demand is coming from my clients or where the sell interest is coming from. My seller clients too. So those are the companies I see as being very interesting. Um, very active right now.

And that’s really where I spend a lot of my time. Whereas some of the, the crowdfunding and the other platforms they talk about, we cover 300 companies or we’ve traded in 400 companies, and I’m saying, well. That means you’re not necessarily an expert in the ones that really matter to. A lot of investors right now are those platforms that we see on the, uh, internet.

Are they trying to do the role that you’re doing, but doing it sort of on mass, because you always see a broker fee on there. So essentially, take the platform away, put the human in. That’s you. Is that. Is that how it works? Yeah, pretty much. I see. You know, this has been such a lucrative industry for a number of years now that you’re seeing.

More new entrants, more new platforms, more new funds. Everyone trying to get a piece of the pie. And for the majority, they’re trying to take over the market. They have grand visions of centralizing everything. Everything’s gonna run through them. They’re gonna be a $10 billion company. And when all these companies are going left, I’m going right.

I’m saying I’m not trying to be a $10 billion company with hundreds of employees. I am trying to stay a small business to spend the majority of my time with my clients and on on the best deal flow possible for them, and really stay disciplined in that. So I’m not optimizing for scale, I’m optimizing for quality and performance.

Um, and I think that’s a differentiator when all these companies are trying to go huge and, you know, hiring like crazy. And some of their agents have only been in the market a year, been in the market two years, and I’m on, you know, seven years or so and counting. Um, and so yeah, you alluded it to as well in terms of scale, but that’s, that’s a huge differentiator and we all intuitively understand the difference between a, a large business and their approach.

Versus the small business approach. Um, I know many of your, your listeners are small business owners as well, so what you’re getting with me is a small business approach backed by years of expertise in this market. Right. Right. Hey, before I forget, and one I was curious about was, um, you know, there was a stock I always following, which was circle Internet.

I mentioned it before, because, because of the, uh, us, uh, US dollar coin, this stable coin. Um, my personal belief that this is, you know, just to, I mean, this is gonna revolutionize everything with the stablecoin world. And I’m curious, so now I’m looking at Circle Internet right now, and it’s priced at, well, it’s actually come way down.

It’s like at $162 right now. It had gone well into the two hundreds, 215 year, 250. Um, do you recall like what that was trading at in the pre IAPO space? Just, just to get some sense of like, you know. The differences, uh, that sometimes these things make in public market? Yeah, I, I don’t recall if there’s been any kind of split or reverse split, um, since they went public.

Maybe you, oh, the IPO was only like, gosh, just a few, like, um, two months ago. So yeah, I’m not a, I’m not aware of any kind of split or anything like that, so hopefully I’m speaking on an apples to apples basis. The market for circle leading up to their IPO was, I would say around $30 per share, give or take.

Yeah. Yeah. So maybe there’s been some split action and we can verify after that. But in the absence of any kind of split, that’s obviously a huge, huge, huge, um, jump from where trades could have gotten done on the private market, even in the months leading up to it. Wow. Yeah. Fascinating. Well, uh, Christine, how do people get ahold of you and your company if they’re, uh, interested?

I’m very active with educational information on LinkedIn under Christine Healey, H-E-A-L-E-Y. You can also find me on my website, healeypreipo.com. And I have a mailing list there too, where I send market insights, occasionally live deals, depending on suitability. Um, and I’m happy to speak to anyone and, and help them learn more.

Great. Thanks so much for being on the program. Thanks so much. We’ll be right back. You make a lot of money but are still worried about retirement. Maybe you didn’t start earning until your thirties and now you’re trying to catch up, and meanwhile you’ve got a mortgage and private school to pay for and you feel like you’re getting farther and farther behind.

Good news. If you need to catch up on retirement, check out a program put out by some of the oldest and most prestigious life insurance companies in the world. It’s called Wealth Accelerator. Can help. You amplify your returns quickly, protect your money from creditors, and provide financial protection to your family if something happens to you.

The concepts here are used by some of the wealthiest families in the world, and there’s no reason why they can’t be used by you. Check it out for yourself by going to wealth formula banking.com. Again, that’s wealth formula banking.com. Welcome back to the show everyone. Hope you enjoyed it. And, uh, again, I mean, listen, this is, uh, uh, again, the same kind of concept as we have in our credit investor club.

Investor club is basically giving you access to stuff that generally you don’t see in public. This is the same thing, except this isn’t like tech companies or other kind of, you know, companies that have. Tremendous value and have not gone public. You can essentially potentially buy stuff as a private investor, get unfair advantage because you’re a credit investor and ride these things up.

So it’s a really interesting concept. I mean, are they all gonna work? I don’t know. I, I’m not in this world right now, but it sure sounds like something to look into if it is of interest to you. And that’s all I have this week on Wealth Formula Podcast. This is Buck Joffrey signing off.