Pre-IPO investing is booming: here’s how to do it right

Companies are staying private longer, and it means that many investors are looking to capitalize on pre-IPO growth. In the U.S. alone, the number of publicly traded companies has dropped by nearly half, from around 7,500 in 1997 to fewer than 4,000 today. 

In 2024, that shift accelerated. The global secondaries market, where investors exchange existing private equity, venture capital, or other alternative asset investments with others, rather than buying from the original issuer, surged to a record-breaking $162 billion in transaction volume as employees sought liquidity and investors sought access. 

The rise of direct-to-consumer platforms is making it easier to enter the private markets. However, it also brings increased complexity. On July 8, 2025, Linqto, a platform once hailed for offering everyday investors access to pre‑IPO titans like Ripple and SpaceX, filed for Chapter 11 bankruptcy. Investigations by the SEC and FINRA, along with emerging reports, indicate that customers never legally owned the shares they thought they did.

While Linqto’s bankruptcy is a cautionary tale worth learning from, IPOs are heating up again. For example, we’ve observed Figma’s 40x oversubscribed listing and growing demand for companies like Anthropic. Venture capital investors have made major gains from Figma, such as Index Venture turning its $86.5 million investment in Figma over the years into a stake worth nearly $6 billion. It’s no surprise more individual investors are exploring how to get in earlier.

As pre-IPO opportunities become more popular, understanding how ownership actually works, and what you’re really buying, has never been more important.

Don’t confuse exposure with ownership: what and how you own matters

What you own: not all shares are created equal

Two people can own shares in the same company and have completely different rights and outcomes. For example, Robinhood recently started offering tokens to European retail clients that it said effectively gives users exposure to private companies, including OpenAI. However, compared to a shareholder, someone holding these tokens may have no legal ownership, no cap-table rights, and limited ability to verify valuation, which is especially important in the event of liquidation.

When it comes to shareholder equity, there are three types that offer different levels of investor protection and return potential:

1. Common (Employee) Stock

Typically issued to employees and early team members. Common stock sits at the bottom of the capital stack, which means that it’s the last to be paid out in a sale or liquidation. For example, when a company is liquidated at a value lower than the amount of money raised, the owner of common stocks typically receives zero payout. It is also highly susceptible to dilution in future funding rounds, if not negotiated thoughtfully. That said, common stock purchased at an early stage or low valuation can offer significant upside if the company performs well.

2. Preferred Stock

Preferred stock is typically issued to institutional investors during venture capital funding rounds. It includes key protections that help manage risk and preserve value; most notably liquidation preference, anti-dilution clauses, and dividends.

Liquidation preference gives investors flexibility in how they exit an investment, depending on the outcome of the company:

• If the company exits at a lower valuation than expected, the investor can redeem their original investment before any proceeds go to common shareholders. This means they get their money back first—offering downside protection in less favorable scenarios.

• If the company performs well and the share price exceeds what they originally paid, the investor can choose to convert their preferred shares into common stock to participate in the upside. This allows them to capture the full value of their equity, often resulting in a higher return.

This optionality is what makes preferred stock valuable. It allows investors to choose the better of two outcomes: capital preservation or upside participation, depending on how things play out.

3. Participating Preferred Stock

On rare occasions, investors will receive participating preferred stock. These investors may receive their initial investment back plus a share of any remaining upside. This could include guaranteed multiples, such as 2x or 3x returns, before common shareholders receive anything.

How you own: SPVs vs VC Funds

Just as the type of shares you hold affects your rights, so does how you access those shares. One of the most common access points in today’s market is through Special Purpose Vehicles (SPVs). SPVs are legal entities that pool capital from multiple investors to buy shares in a private company. SPVs can offer efficient access, especially for investors seeking lower minimums or diversified exposure.

However, in the case of Linqto, the pre-IPO investors discovered they held indirect interests, often with undisclosed markups and murky legal title, instead of owning shares.

In contrast, when you invest directly, through a venture fund or a co-investment structure, you’re not gaining exposure through secondary or synthetic structures. You’re investing alongside institutional investors, on negotiated terms that are aligned with the company’s capital structure. That typically means:

• Legal protections through preferred equity

• Cap-table inclusion

• Transparency around pricing and rights

• Regulatory oversight and formal documentation

So the lesson here is: SPVs are a powerful vehicle, but they require a bit more due diligence to ensure that you’re not just gaining access to a company, but also securing proper ownership. The first step is to ask the right questions.

Ask the hard questions to understand your ownership

With so much excitement around pre-IPO investing, it’s easy to focus on the company and overlook the structure. Here are a few questions to get you started:

• Who am I buying from?

There’s a big difference between being invited into a venture round and buying secondary shares from an employee or other investors. Direct investments often offer better alignment with the company and greater transparency. Secondaries can still provide value, but they require closer diligence to assess pricing, investor rights, and legal ownership.

• What type of shares am I buying—common or preferred?

Common stock typically comes with higher risk and fewer protections, but might be more readily available. Preferred shares offer investors a real seat at the table, which means greater downside protection and upside flexibility.

• What rights come with my investment?

Look for key terms like liquidation preference, anti-dilution, information rights, and voting rights. Without these protections, you may be exposed to greater financial risk, even if the opportunity seems attractive due to a lower minimum or easier access. For example, you might find yourself last in line for payouts during a liquidation event, with limited recourse or visibility.

• Will I own shares that are actually on the company’s cap table?

A cap table (capitalization table) is the official record of a company’s equity structure. It outlines who owns what, listing all shareholders, the number and types of shares they hold, and how ownership changes over time, especially after fundraising rounds, option pool changes, or secondary transactions.

Bridging your pre-IPO aspirations with lasting ownership

You deserve to participate in pre-IPOs with peace of mind, not by navigating unclear structures, piles of paperwork, or settling for bottom of the capital stack exposure. Arta’s team of experts is here to help make that possible.

When reviewing co-investment or venture capital opportunities, our teams and partners conduct rigorous due diligence led by investing veterans. Among many strict criteria, we ensure that each opportunity offers our investors the structural integrity required to benefit from the underlying company’s success.

Instead of buying secondhand shares through opaque SPVs, Arta members are invited into institutional-quality rounds alongside reputable venture capital firms. We try to keep the minimum at $100,000 when possible, which is a fraction of the typical $5 million minimum for VC funds.

Additionally, while some platforms charge 3–6% in fees, we aim to keep total fund and management fees under the 2% range, so more of your capital stays invested and working for you.

With Arta, you’re not just getting access, you’re gaining the ability to invest like industry giants. Arta members can connect with our team to ask questions or get clarity on specific opportunities. We combine digital access with personalized support, so your private investments are grounded in transparency, not complexity.