From Private to Public: How Retail Investors Are Reshaping the Investor Relations Lifecycle of Pre-IPO Companies
From Private to Public: How Retail Investors Are Reshaping the Investor Relations Lifecycle of Pre-IPO Companies
New Strategies & Playbooks for IR with Pre-IPO Stakeholder Engagement
Investing is undergoing a major transformation. Once the exclusive domain of institutional investors and the ultra-wealthy, it’s now opening up to a wider pool of retail investors. This shift is particularly noticeable in the pre-IPO space, where advances in technology and regulatory changes are allowing individual investors to enter the market earlier.
The World Economic Forum notes that interest in private market investing is on the rise, with individual investors particularly viewing these opportunities as a way to diversify their portfolios. Citing data from Moonfare, a private equity investing platform, the WEF cites that individual investors continue to build their portfolio allocations in these areas.
Source: World Economic Forum
In response to growing interest in the private markets, pre-IPO companies are adjusting their investor relations strategies to engage this growing investor segment earlier in their lifecycle.
The Rise of Pre-IPO Access for Retail Investors
In the past, investing in pre-IPO companies was reserved for accredited investors, defined as individuals with a net worth exceeding $1 million or an annual income of $200,000. The number of accredited investors continues to rise, with more than 24 million U.S. households now meeting the criteria needed to invest in private companies—reaching all-time highs in 2024.
A key driver of this momentum has been legislative changes, such as the JOBS Act, which became law in 2016, that have opened the door for more retail investors to participate in these previously inaccessible opportunities. Fintech companies have responded by innovating their products to meet the new demand.
For example, platforms like AngeList, Fundrise, Dealmaker, and Republic now allow individual investors to buy into startups, offering them access to early-stage companies that were once out of reach. Platforms like Fundrise even offer in-depth analysis and data to help inform investor diligence.
Sweater Ventures is another fintech that’s building the infrastructure needed for venture capital funds to provide access to a broader pool of investors.
This democratization of access is supported by secondary marketplaces, such as EquityZen, Hiive, and Carta (which recently sold its secondary business to investing platform Public.com). These platforms enable retail investors to buy shares in private companies from existing shareholders. Although the majority of these platforms cater to accredited investors, recent developments are expanding opportunities for retail investors to get involved.
Technology and the Democratization of Pre-IPO Investing
Technology has been a key driver in making pre-IPO investing more accessible. Platforms like AngelList and Fundrise have created streamlined processes for retail investors to research, invest in, and monitor private companies. This tech-driven transparency was once the privilege of institutional investors, but it is now available to anyone interested in learning about high-growth firms. Retail investors can track company performance, view valuations, and gain access to research tools once reserved for venture capitalists.
Tech innovations have also lowered the barriers to entry, allowing retail investors to invest in high-growth companies through fractional shares. For example, the rise of unicorn companies has led to secondary marketplaces unlocking new opportunities for those previously excluded from this category of investing.
The Evolution of Investor Relations for Private Companies
As more retail investors gain access to pre-IPO opportunities, private companies are faced with the need to develop robust IR functions earlier in their lifecycle. Typically, public companies are required by the SEC to disclose detailed financials, but private companies have less regulatory pressure. However, in order to maintain transparency and trust with retail investors, private companies are beginning to adopt communication strategies similar to their public counterparts.
Private companies must also recognize the importance of educating these retail investors, who may not have the same level of expertise as institutional investors. Clear, frequent, and jargon-free communication is crucial. Companies are increasingly relying on investor websites, email newsletters, and social media to engage this new audience.
Communicating with Retail Investors vs. Institutional Investors
Communicating with retail and institutional investors does not require entirely disparate strategies as one may assume. Individual investors are more educated than ever before, and rely on new platforms, data sources, and AI to conduct thorough and comprehensive research when making decisions. Moreover, the new generation of institutional investors and analysts are not unlike individual investors in their desire for clear, succinct and timely information presented in modern formats like microsites, social media updates, videos, and podcasts.
Consider pre-IPO companies communicating with their cap tables on a weekly, monthly or quarterly basis. These updates will contain an overview of how the company is tracking against its strategic plan according to consistent KPIs, new product features, partnerships, and other developments, competitive landscape analyses and more. These same buckets of information are what pre-IPO individual investors are looking for, as well.
And while the increased sophistication of retail investors means they, too, expect detailed financial reports and in-depth market analysis, both individual and institutional audiences can benefit from simplified and accessible updates. As a result, companies are creating more digestible content, using storytelling and clear value propositions to maintain engagement with this growing audience.
The high-growth fintech Zilch, for example, recently shared an update on key milestones in the same style you might see from a publicly-traded company.
Additionally, the tools and strategies for reaching retail investors have evolved. Investor portals, mobile apps, and even social media are becoming critical tools for companies looking to provide timely updates, build investor confidence, and drive stakeholder loyalty as the company continues on the journey from public to private.
Preparing for an IPO by Building a Retail Investor Base
One key benefit for private companies engaging with pre-IPO retail investors is the ability to build loyalty and excitement before going public. By communicating with this audience early, companies can create a base of committed investors who are likely to stay on after the IPO. This engagement also provides a foundation for identifying investor preferences and tailoring communication strategies accordingly.
Companies like Reddit ($RDDT), Robinhood ($HOOD), and SoFi ($SOFI) famously carved out allocations for their users ahead of the IPO. Reddit went a step further, offering access to a percentage of their most loyal, engaged, and additive members. Airbnb ($ABNB) offered pre-IPO access to its hosts before going public in 2021.
Data-driven insights can help private companies segment their investor base, offering loyalty programs or exclusive content to those who have invested early. This not only strengthens relationships but also builds momentum leading up to the IPO, ensuring that the company has a solid group of supporters as it transitions to the public market.
The average age of a company issuing an IPO is between 8 and 10 years of age, according to the California Legislative Analyst’s Office. For founders this may feel like a lifetime; however, as companies begin to enter the later stages of growth, building out an IR foundation early is becoming increasingly critical.
Many private companies will begin to build out IR functions in parallel with late-stage funding rounds (C or D). Some companies, like Cava ($CAVA), began internally preparing earnings reports two years before it went public, according to their CEO and Co-Founder Brett Schulman who talked about their pre-IPO prep process on Stakeholder Labs’ After Earnings Podcast.
Full episode: “Cava: Innovating Fast-Casual Dining, Pushing Love Buttons, and IPO Success With CEO Brett Schulman”
Monday.com ($MNDY) CFO Eliran Glazer started in his role just four months before their IPO and said building out the company’s IR function and associated systems was a top priority.
Full episode: “monday.com: Journey from Inception, IPO Preparation, to Future Growth with CFO Eliran Glazer”
Shifting Strategies Post-IPO
The transition from private to public brings significant changes in how companies manage investor relations. Post-IPO, companies are bound by SEC regulations that require more frequent and detailed disclosures. However, the lessons learned from communicating with pre-IPO retail investors can be invaluable. By maintaining open channels of communication and continuing to offer personalized updates, companies can keep their investor base engaged and build long-term loyalty.
As retail investors continue to gain access to the pre-IPO market, companies that adapt their IR strategies early will be better positioned to succeed both before and after going public. By embracing transparency, leveraging technology, and fostering strong relationships with this new class of investors, private companies can create a more sustainable path to growth and long-term success.
Stakeholder Labs builds tools for modern organizations that want to up level their shareholder analytics and engagement to support long-term growth. Contact us to learn more.
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