what is a pre ipo placement 
a pre initial public offering ipo placement is a private sale of large blocks of shares before a stock is listed on a public exchange the buyers are typically private equity firms hedge funds and other institutions willing to buy large stakes in the firm due to the size of the investments being made and the risks involved the buyers in a pre ipo placement usually get a discount from the price stated in the prospective for the ipo understanding the pre ipo placementfrom the perspective of a young company a pre ipo placement is a way to raise money before going public it also is a way to offset the risk that the ipo price will prove to be optimistic and the price will not go up immediately after it opens moreover and often investors in these private sales are institutional investors and help the company with governance matters and getting institutionalized before going ipo from the buyer s perspective the amount per share may be discounted from the expected ipo price but there is no way to know the price per share that the market will actually pay in fact the purchase is typically made without a prospectus and with no guarantee that the public listing will occur the discounted price is compensation for this uncertainty not many individual investors take part in pre ipo placements they are generally restricted to 708 investors as the irs calls them these are high net worth individuals with a sophisticated knowledge of the financial markets the company however does not want these private buyers to immediately sell all their shares if their stock soars once it opens on an exchange to prevent this a lock up period is generally attached to the placement preventing the buyer from selling shares in the short term an example of pre ipo placementplenty of investors were excited about the impending ipo of alibaba group the e commerce conglomerate based in china when it announced it would be listed on the new york stock exchange as baba in september 2014 in advance of its public debut alibaba opened up a pre ipo placement for large funds and wealthy private investors one of the buyers was ozi amanat a venture capitalist based in singapore he purchased a block of 35 million of pre ipo shares at a price below 60 per share and then allocated the shares among asian investors who had ties to his fund k2 global pre ipo placements are generally open only to high net worth individuals with a sophisticated knowledge of the financial markets on its first day of public trading baba closed just below 90 per share as of the start of november 2020 it was trading at above 276 per share you might suspect that alibaba s management regretted that pre ipo placement however the money paid by amanat and other investors ensured that the company had adequate funding before its ipo and mitigated the risk for alibaba that the ipo would not be as successful as the company hoped and it certainly worked out well for amanat s clients 