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Late-stage non-public corporations as soon as flew below the radar. Immediately, they’re on the heart of investor consideration. As corporations keep non-public longer — usually reaching $1 billion to $10 billion valuations earlier than ever touching public markets — the alternatives in pre-IPO investing have grow to be not solely extra seen but in addition extra accessible.
But, with extra entry comes extra noise. And for buyers getting into throughout these remaining phases, whether or not via 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 a whole lot of late-stage alternatives and labored with operators behind the scenes, I’ve realized that filtering these corporations requires a distinct type of sample recognition. One rooted in maturity, not momentum. One relies on construction, not tales. Here is what that playbook seems to be like when carried out proper.
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Filter for progress that really leads someplace
On the pre-IPO stage, progress alone is not spectacular — it is anticipated. What issues is the standard of that progress.
As a substitute of top-line income alone, deal with margin well being, buyer growth and consistency. In response to Bessemer Venture Partners, top-performing SaaS corporations getting ready for IPO usually report web income retention above 130% and gross margins exceeding 70%. These metrics present prospects aren’t solely staying — they’re spending extra.
Declining customer acquisition costs and rising payback effectivity are additionally vital alerts. If an organization continues to be over-relying on paid advertising and marketing to generate pipeline, it might not have the type of sturdy progress wanted to thrive post-IPO.
Lastly, exit-ready corporations normally show repeatable, forecastable progress — 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 corporations with flashy progress metrics — $100 million in ARR, a stacked investor roster and even buzz round an imminent IPO. However if you peel again the layers, what you generally discover is an organization that is operating sizzling however not essentially operating nicely.
Late-stage doesn’t suggest low threat. In truth, the danger simply adjustments form. One of many largest issues I search for is not within the income line or the client logos — it is within the individuals operating the enterprise. I as soon as walked away from a deal as a result of the corporate had gone via 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 instructed me every little thing I wanted to know.
When management cannot stick, it isn’t only a turnover downside; it is normally a management downside. It means somebody, usually the founder, is operating the present in a method that makes it arduous for anybody else to do their job. You do not lose a number of senior execs that near an IPO until there’s stress, 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 may wager they are not prepared for the type of scrutiny that comes with going public.
Individuals love stability sheets and progress charts at this stage, however actually? That is not the place the danger hides. The true threat is within the stuff that does not present up in a deck.
Cap tables are the identical. I’ve seen offers disintegrate when it turned out the construction was a multitude — layers of most well-liked shares, backdoor secondaries, phantom fairness. Founders and early insiders already had their payout locked in, whereas new buyers had been unknowingly final in line. However it was all buried. You’d by no means know until you requested the uncomfortable questions.
That is why diligence issues — actual diligence, not simply flipping via a knowledge 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 would possibly nonetheless do the deal, however a minimum of you may stroll in along with your eyes open.
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Actual IPO readiness is about working like they already are public
The most effective late-stage corporations do not simply speak about 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 just about 80% of profitable tech IPOs had CFOs or finance leads with earlier exit expertise. These leaders deliver 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 seemingly is not prepared but.
Additionally, take note of optionality. Whereas IPO will be the acknowledged path, good buyers perceive that strategic M&A or structured secondaries can provide equal — or sooner — liquidity. Ask questions on what Plan B seems to be like and whether or not the board helps a couple of exit technique.
Use your personal thesis to determine if there’s nonetheless an upside
It is simple to get enthusiastic about large names, particularly once 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 based mostly on comps? And the way robust is the corporate’s differentiation as soon as public-market scrutiny kicks in?
In response to Crunchbase data, over 50 late-stage unicorns delayed IPOs or raised down rounds in 2022 and 2023 because of shifting macro situations — not poor companies however poor timing. That is why your thesis — concerning the market, the mannequin, and the exit window — must be clear earlier than you commit capital.
Good buyers do not simply filter corporations. They filter entry factors, timing and construction as a result of all three have an effect on outcomes.
Pre-IPO investing affords highly effective alternatives, however provided that you realize what to search for.
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Late-stage corporations can develop quick, burn large and seize headlines. However the ones that actually scale — and reward buyers — 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 buyers from hopeful ones.
