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Late-stage non-public firms as soon as flew beneath the radar. At the moment, they’re on the middle of investor consideration. As firms keep non-public longer — typically reaching $1 billion to $10 billion valuations earlier than ever touching public markets — the alternatives in pre-IPO investing have develop into not solely extra seen but additionally extra accessible.
But, with extra entry comes extra noise. And for traders getting into throughout these closing levels, whether or not by means of secondaries or direct late-stage offers, the danger is not nearly valuation. It is about readability.
As a result of within the pre-IPO world, not each high-growth firm is prepared for what’s subsequent.
Having reviewed tons of of late-stage alternatives and labored with operators behind the scenes, I’ve discovered that filtering these firms requires a unique type of sample recognition. One rooted in maturity, not momentum. One is predicated on construction, not tales. This is what that playbook seems like when achieved proper.
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Filter for development that really leads someplace
On the pre-IPO stage, development alone is not spectacular — it is anticipated. What issues is the standard of that development.
As a substitute of top-line income alone, deal with margin well being, buyer growth and consistency. In keeping with Bessemer Venture Partners, top-performing SaaS firms getting ready for IPO sometimes report internet income retention above 130% and gross margins exceeding 70%. These metrics present prospects are usually not solely staying — they’re spending extra.
Declining customer acquisition costs and growing payback effectivity are additionally necessary alerts. If an organization remains to be over-relying on paid advertising and marketing to generate pipeline, it might not have the type of sturdy development wanted to thrive post-IPO.
Lastly, exit-ready firms often exhibit repeatable, forecastable development — one thing that turns into seen in clear financials, audited statements and constant reporting throughout investor updates.
Do not ignore what’s hiding beneath the cap desk
I’ve seen firms with flashy development metrics — $100 million in ARR, a stacked investor roster and even buzz round an imminent IPO. However while you peel again the layers, what you generally discover is an organization that is working sizzling however not essentially working nicely.
Late-stage doesn’t suggest low danger. In actual fact, the danger simply adjustments form. One of many largest issues I search for is not within the income line or the shopper logos — it is within the individuals working the enterprise. I as soon as walked away from a deal as a result of the corporate had gone by means of two CFOs in lower than a 12 months, and the third was already “interim.” That may not present up as a bullet level in a pitch deck, but it surely advised me all the pieces I wanted to know.
When management cannot stick, it isn’t only a turnover downside; it is often a management downside. It means somebody, typically the founder, is working the present in a manner that makes it laborious for anybody else to do their job. You do not lose a number of senior execs that near an IPO until there’s pressure, disorganization or worse.
At that stage, the job is not about imaginative and prescient anymore. It is about execution. If the workforce is not aligned internally, you possibly can guess they are not prepared for the type of scrutiny that comes with going public.
Folks love steadiness sheets and development charts at this stage, however truthfully? That is not the place the danger hides. The true danger is within the stuff that does not present up in a deck.
Cap tables are the identical. I’ve seen offers collapse when it turned out the construction was a large number — layers of most well-liked shares, backdoor secondaries, phantom fairness. Founders and early insiders already had their payout locked in, whereas new traders had been unknowingly final in line. But it surely was all buried. You’d by no means know until you requested the uncomfortable questions.
Because of this diligence issues — actual diligence, not simply flipping by means of an information room. Ask the place the our bodies are buried. If the solutions include too many footnotes or “we’ll circle again,” take a beat. You may nonetheless do the deal, however a minimum of you may stroll in together with your eyes open.
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Actual IPO readiness is about working like they already are public
The perfect late-stage firms do not simply discuss going public; they function like they already are.
A powerful indicator of IPO readiness is a finance workforce with precise public firm expertise. In its 2023 IPO Readiness Report, EY discovered that almost 80% of profitable tech IPOs had CFOs or finance leads with earlier exit expertise. These leaders convey important rigor to budgeting, compliance, forecasting and inside controls.
Different indicators of readiness embrace audit-compliant financials, constant board reporting, cross-functional alignment on KPIs and clear, investor-friendly communication. If an organization nonetheless must “get its books so as” earlier than going public, it doubtless is not prepared but.
Additionally, take note of optionality. Whereas IPO would be the said path, sensible traders perceive that strategic M&A or structured secondaries can supply equal — or quicker — liquidity. Ask questions on what Plan B seems like and whether or not the board helps a couple of exit technique.
Use your personal thesis to resolve if there’s nonetheless an upside
It is simple to get enthusiastic about huge names, particularly after they’re just one or two steps away from going public. However valuation entry factors matter simply as a lot as fundamentals.
Ask your self: Does this firm nonetheless have room to compound worth? Have public markets already priced on this story primarily based on comps? And the way sturdy is the corporate’s differentiation as soon as public-market scrutiny kicks in?
In keeping with Crunchbase data, over 50 late-stage unicorns delayed IPOs or raised down rounds in 2022 and 2023 attributable to shifting macro circumstances — not poor companies however poor timing. That is why your thesis — concerning the market, the mannequin, and the exit window — needs to be clear earlier than you commit capital.
Good traders do not simply filter firms. They filter entry factors, timing and construction as a result of all three have an effect on outcomes.
Pre-IPO investing presents highly effective alternatives, however provided that you understand what to search for.
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Late-stage firms can develop quick, burn huge and seize headlines. However the ones that really scale — and reward traders — are these with construction beneath the story. They’ve constructed strong financials, ready for scrutiny and aligned their groups for an actual exit.
Earlier than you wire capital, ask your self: Is that this firm actually constructed to go public? Or is it simply speaking like one?
Filtering for the precise reply is what separates disciplined traders from hopeful ones.
