How to Make Money Investing in Pre-IPO Stocks: An Investors Guide to Building Wealth in Private Companies by Josh Maher

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DISCOVERING the PRE-IPO MARKET
s a young entrepreneur, I dreamed of building a business like Bill
Gates or Steve Jobs had. I dreamed of building a big business and
having the status and power that came along with that level of
success. Starting in real estate at the right time, I did build a successful
business, and I created enough wealth to finance startups and
entrepreneurial firms. However, I attribute my present success to a
serendipitous event that helped me understand what was missing from my
earlier vision and what changes were necessary in the market
microstructure to enable employees and other stakeholders of
entrepreneurial firms to realize their dreams before their firms transitioned
from startup to growth companies. More on the missing parts of my vision
later. Permit me to reminisce briefly for a moment...
During my days in real estate, I found that I had a knack for connecting
with people, and I built a wide network of colleagues who were chasing
similar dreams. At the time, my network of friends and colleagues were all
chasing dreams of building the next Facebook or the next Apple. Many
within my circle of friends eventually became a who's who of entrepreneurs
in Silicon Valley.
Leaving my successful career in real estate, I began financing some of the
best companies my friends were building, as well as my own, and my
network of savvy technologists grew rapidly. The companies at this stage
are generally referred to as startups: from zero to eight or nine years old,
these are companies that are attempting to create new value in the world.
After such a company is certain that it can create greater value and profit
from the marginal value it creates year in and year out, it becomes a growth
company. It is the promise of greater values from current values that propels

a startup into becoming a growth company. Most of the young employees at
these firms are bright, well-educated, and motivated people. They go to
work for persuasive technologists and business leaders with a dream. They
work for a lower salary, hoping that they'll be a part of building that dream
company into the next global leader, and, at the same time, building their
own wealth. Most of these startups didn't eventually succeed. But more than
a handful of them did.
The journey was similar for those who did not make it and for those who
did: fourteen-hour work days, seven days a week, with little time for the
other pleasures life has to offer. When growth is the most important metric
used to convince new investors that the investment will pay off, then all of
life’s luxuries need to be placed on hold in the early days of a company’s
life. This is fine for the young technologists whose efforts do result in
building an incredible company. When the companies they work for
transition from the startup stage to a growth company, they usually have a
capital infusion from a significant private investor, an acquiring company,
or the sought after initial public offering (IPO). When the capital infusion
occurs, those entrepreneurs along with their employees can cash out, and
the payoutgives them the flexibility to build a lifestyle that they never
would have been able to enjoy when they started working at the startup all
those years ago.
Success so defined is not the norm for all startups. It has been reported that
over the course of the first ten years of a company’s origin, 71% of all
startups fail (Statistic Brain, 2016). The employees who worked for those
unsuccessful companies went through the same journey as the employees
who happened to be at the successful ones. The difference is in the final
payout: zero or millions.
People like to share their stories, whether we’re at the gym, in coffee
houses, in pubs, or at restaurants. We like to tell the tale of our journey to
colleagues young and old. My circle of friends was mostly the younger,
hungrier techies who were learning from the older ones. They’d always
heard more stories about failure than success. The dream was still alive, and
they wanted better outcomes. Why would they want to work night and day,
for half a decade at a growing company, only to find that the company

How to Make Money Investing in Pre-IPO Stocks: An Investors Guide to Building Wealth in Private Companies by Josh Maher