How pre-IPO Investments on United Traders Platform Work
Dmitry Belousov
United Traders CEO
Let’s look at a pre-IPO investment lifecycle on the United Traders platform and at how to join a deal.
What pre-IPO companies are selected by United Traders
Startups from Silicon Valley
First and foremost, we consider the stocks of companies that originate and develop in Silicon Valley, California, U. S. Silicon Valley is the place where the quarters of the best tech companies are concentrated. Also, this is the home of startups that create products of the future (go watch our video about Silicon Valley to get a detailed story about the environment that persists as the primary destination for such companies).
The second requirement for a company that you eventually see on our platform is that it must develop with the help of investor’s funding. We select only the startups that demonstrate rapid growth and raise money from the largest investment funds at every stage of their development.
The third criteria: our few select have a fully-fledged business worth hundreds of millions and billions of dollars. These are not prime-stage companies and even not the companies that have already obtained investments. We are talking about businesses that demonstrate all the signs of going public within 1-3 years.
Only companies with the best prospects are selected for unitedtraders.com. We discard all the rest.
Companies from all over the world
Extremely rarely we select companies that didn’t originate in Silicon Valley. However, such a company will too meet all our requirements for a potentially successful technology startup.
Selection of investment ideas
There are two ways to add stocks to our platform:
- At investor’s request
- On our initiative
At investor’s request
Any United Traders customer can propose stocks for the platform. To do it, he or she must be ready to act as an anchor investor and invest about $500,000-1,000,000.
Such an investor would suggest buying some private stocks and confirm that he’s ready to invest in them. Our analysts research this company and make their decision. We consider only companies which, in our opinion, have great profit potential. If the investment meets all the requirements, we buy its stocks for the anchor investor.
On United Traders analyst team’s initiative
This is the primary way of adding a pre-IPO type investment idea to United Traders platform — on our analysts’ recommendations, a professional team with a background of investing in the over-the-counter market.
We continually track the largest private companies from Silicon Valley. In the first place, we pay attention to new funding rounds, company’s business success and any available news about its internal events.
On the other hand, we constantly consult a network of private and institutional investors, to get information on who and at what price is buying/selling stocks. In this way we are constantly updating the shortlist of companies whose stock can make their way to the pre-IPO section on United Traders.
When there’s demand on United Traders platform for new investment ideas and the market has good offers, we start the investment idea preparation process.
Georgy Yuriev — United Traders Chief Analyst
Posting an idea, investment orders and execution
Collection of preliminary orders
After we have selected an investment idea for our platform, we post it in the pre-IPO section with a minimum entry threshold of $5,000, inform large investors about a new investment idea and collect preliminary orders.
At this stage, an investment may still fail to go through. Your order may get rejected within 30 days unless we see sufficient interest from investors and within 60 days — if we fail to pass a ROFR procedure.
ROFR — Right of First Refusal means that a company and its key stakeholders exercise have a right to buy its stocks before outsiders can, thus blocking our deal.
Execution of orders
If we see enough interest from investors and we pass a ROFR procedure, the stocks will be reflected on United Traders’ balance sheet and we execute all preliminary orders made by our investors. After this we reduce the threshold entry to the price of one share and provide an opportunity to invest in this company to everyone.
Every user who submitted an order, will see a corresponding investment on the page “My portfolio”. Orders are processed instantly. If your order gets rejected, there is a chance that we don’t have enough shares to fulfill it — try to apply for a smaller amount. As soon as your order is fulfilled, the number of shares and their price will show in your account in the section “My portfolio”.
How we buy private stocks
Regardless of a private company’s development stage (pre-IPO or early stage) — the process of buying stocks is approximately the same. If a company meets the requirements of our investment strategy, we see confirmed interest from investors and we have a contractor who can sell stocks at a good price, we start the following procedure:
- Check the structure of the deal: ownership through an intermediate company (SPV), buying an option from an employee, entering into a forward contract to supply stocks at a set price in the future.
- Sign a Purchase Agreement и Term Sheet — these papers fix the final terms of a deal: stock description, ownership form, price, quantity, commissions and the terms of stocks transfer.
- Companies from all over the world. We make sure we pass a ROFR procedure. If none of the stakeholders used its contractual right to buy stocks at the deal’s price, this procedure is considered to have been passed. If a stakeholder exercises its ROFR right, the deal will be canceled.
- Sign a Stock Transfer Agreement, sending money and receiving stocks.
- We get a stock ownership certificate.
How often prices are updated
Before a company goes public, its stock price changes with the next round. These changes don’t happen often, but we track the information about the key events in the companies in our portfolio (syndicated deals, investment rounds, indicative interest from funds and private investors in buying and selling stocks) and we let our investors know about them.
Before a company goes public: If the price has changed by more than 10% of the current price on United Traders platform, we will change it as soon as we receive the actual information. Anyway, we update the price on a monthly basis.
Use public sources to check stock prices of some companies, but the prices of the last funding round and those of the over-the-counter market do not always coincide. Shares of some companies are sold with a premium to the latest round of funding, the way it happened to Cohesity.
After IPO, the price is updated every day according to the closing price.
A pre-IPO company’s share price change in the United Traders interface
Exit before IPO
If you want to exit an investment before IPO, say, to fix your profit following a jump in share prices, you can do it in your account at any time. You can exit an investment entirely or sell only part of it (in this case, you need to specify the number of shares). We don’t charge any extra fees for early exit. Your exit application will be processed instantly.
A fragment of the interface of the unitedtraders.com platform featuring an investment idea with an early exit option
The shares you have sold will become available on the United Traders platform, and someone else will be able to join this investment. Please be aware that if the platform features some stocks but your bid gets rejected, there is a chance that we don’t have enough shares to fulfill it. Try to apply for a smaller amount. The most popular stocks experience enormous demand, and we quickly run out of stock with them, no pun intended. To see the stocks available now, go to the section “Investment Ideas” on the United Traders website.
Exit after IPO
If the company you invested in is going public, your investment is further seen as an investment in IPO.
So a company files an S-1 form — the required filing format of the U. S. Securities and Exchange Commission (SEC). S-1 filing confirms that the company is going public. A few days after the filing, a company reveals the price range for its offering, the price varying with a difference of several dollars. The offering price is the price at which a company is going to sell its shares. You can compare this price range with the price at which you bought your stocks. If the offering price is higher than the price at the pre-IPO stage, you will see your profit immediately. If this price is lower, you should wait for the start of trading and follow the price after IPO.
When a company goes public, the share price in your account will be updated every day. You won’t be able to sell shares for 6 months after IPO — the so-called lockup period, a practice in a publicly-traded company that freezes company stock selling for a time.
After the lockup period is completed, we will begin the process of transferring the shares to our brokerage account. The profit will then be deposited into your investment account.
Alternative exit scenarios
Apart from client’s selling shares and IPO, there are several scenarios when United Traders may close a pre-IPO investment.
- M&A (mergers and acquisitions) — a startup may acquire another startup as a merger. In this case investor’s profit or loss depends on the terms of a deal. If a company is acquired with a premium, an M&A deal can become quite a positive scenario for an investor.
- Bankruptcy — in this case investor receives zero. However, this happens rarely. Among the companies selected by United Traders, there were none such companies.
- Selling stocks on an OTC market (on UT’s initiative). If it becomes clear that a company won’t go public, or it postpones its offering indefinitely or the prospects of this company worsen (a company can’t raise funding through rounds, has debts over 3 years, doesn’t show revenue, etc.), we sell such stocks for the benefit of investors.
M&A — Mergers and Acquisitions refers to the economic processes of business and capital consolidation occurring at the micro- and macroeconomic levels which result in the emergence of larger companies in the market.
Fees
We charge commissions on your participation in pre-IPO investment:
Entry fee – 3.5% of the price at which you bought the stocks. Charged at the start of an investment.
Exit fee – 0.5% of the price at which you sold the stocks. Charged at the closing of an investment.
Profit fee – 20% of net income. Charged at the closing of an investment, after the rest of the commissions are paid.
