Chris’ note: Last night, colleague Teeka Tiwari lifted the lid on his latest recommendation to scoop up shares in the pre-IPO market. That means before a company goes public.
Most folks have no idea these kinds of opportunities exist. They stick to investing in stocks after they go public. And that’s a mistake. Teeka says early investors in the pre-IPO deal he unveiled last night stand to make 1,360%-plus gains once it goes public.
He hosted a special presentation to share the details on how to get involved in this opportunity. So if you missed it last night, make sure to catch the replay here. Then read on below for my interview with his chief analyst, William Mikula. As William will show you, you don’t need a fortune to get started in the pre-IPO market… and the gains on offer there trounce those that publicly listed stocks limit you to.
Chris Lowe: Thanks for joining me, William. I want to talk about the newest pre-IPO [initial public offering] opportunity you and Teeka Tiwari have hunted down for Palm Beach Venture subscribers.
But first, let’s loop in folks who are new to pre-IPO investing. A lot of people think there’s just one kind of stock market. But as you guys have been showing, there are actually two kinds – private and public. And the private market can be a lot more lucrative than the public one. So let’s start there…
William: Sure. What Teeka and I really enjoy doing is taking a misunderstood asset class and doing a deep dive into it to figure out if there’s a way for Main Street investors to take advantage.
We did this with options trading at Alpha Edge, which we launched in 2018. And in 2016, Teeka was the first major newsletter writer to put out hedge-fund-like research on cryptos at Palm Beach Confidential.
Around the end of 2018, we started looking for new strategies to help our readers profit. We were asking a simple question: How were the world’s top investors making their largest gains in the stock market?
We had a good feel for cryptos and options. But when it came to buying shares in the stock market, where was the edge?
We noticed the world’s most successful investors – guys like Peter Thiel, Marc Andreessen, and other venture capitalists – were making insane gains by getting in before companies went public.
And we discovered that once a company had passed a certain number of milestones but was still private, it was an ideal time to buy.
Even better, because of something called the JOBS Act, it’s now legal for unaccredited, everyday investors to buy into private companies. Thanks to this law, what used to be the playground of the rich and the connected has opened up for ordinary folks.
Chris: I was reading a piece you wrote at our Palm Beach Daily e-letter back in April. You were looking at the average gains on IPO day – when a formerly private company lists on a public stock exchange such as the New York Stock Exchange – going back to the start of this year.
The average gain for public investors on IPO day over that timeframe was 36%. But the average gain on IPO day for private investors was more than 20,000%. Those gains are worlds apart.
You travel all over the world. You talk with the CEOs of companies you’re researching. What are some of the things that are forefront in your mind when you’re hunting for new pre-IPO deals?
William: With pre-IPO investing, there are unique challenges. These companies have to make certain disclosures. But regulators don’t hold them to the same strict standards as they do publicly traded companies.
So Teeka and I developed a system called SCALE to navigate private markets. I’ll walk you through what each of the letters stands for…
“S” is for structure. With the structure of a deal, you’re looking for something that’s attractive to early shareholders.
Many times in private investing, you’ll see deals that aren’t shareholder-friendly. It could be that the founders want to raise $50 million… but shareholders that come in on that deal have no protections or voting rights.
So the first thing we do is analyze the structure of the deal to make sure it’s beneficial to shareholders coming in during the private round.
Second, we look at what the company will use the cash we invest in it for. Cash is the “C” part of the SCALE system.
Will the company use it to build the business? Or will it use it for something less likely to build shareholder value?
“A” stands for advantages. What unique advantages does this private company have that its competitors don’t? If there’s nothing unique about this business, why does it matter?
“L” stands for leveraging the right trend. This could be a unique business… in a great niche… with a great deal structure. But if the addressable market is $50 million, that’s not enough growth upside for us to 10x our investment.
And that’s our mandate. Before we make a recommendation, we ask: “Can this thing 10x?”
We’ve recommended pre-IPO shares in companies in tech… legal cannabis… and gaming. All these sectors have massive addressable markets. So if you have the right company in one of these sectors, a 10x gain is possible.
Finally, “E” stands for executives. We make sure the team running the show is capable and talented, with a history of past success in similar markets.
Most companies we look at do not pass the SCALE test. We’re extremely picky in the private investing space. We might look at 10 deals. But only one will have a hope of passing the SCALE test.
Once a company passes, we dig deeper. Ultimately, once a company makes it into our pages, it’s gone through anywhere from three to nine-plus months of vetting. Sometimes, it takes more than a year.
Chris: Folks reading this may think they need a lot of cash as private investors. What’s the minimum someone could invest in one of these ideas?
William: Our Palm Beach Venture subscribers span the wealth spectrum. So what’s a good fit for one will be different from what’s a good fit for another. But in general, the minimum stake is anywhere from $500 to a couple thousand dollars. This is a very accessible market.
Chris: I know Teeka spoke all about it during his event last night. But what can you tell me about the new opportunity you guys have tracked down?
William: As your readers will know, COVID-19 has wreaked havoc on supply chains. And the most important supply chain of all is food. Without food, nothing else matters.
If I have to wait a few extra days for a new iPhone or a new pair of Nikes, that’s okay. But if there’s no food on the shelves, that’s a huge problem.
So we did a deep dive to figure out how that supply chain works. And we were blown away by the fragility in the system.
We found one pre-IPO company at the heart of the global food supply chain. We’re not talking about a two-bit supplier in some forgotten outpost. This company is the beating heart of the global supply chain.
In a perfect world, it’d like to pursue a public listing. But right now, it’s private and raising capital.
It’s been hard at work building this business for about 10 years. And courtesy of the disruption to supply chains, this deal is timelier and more relevant now than any other opportunity I’ve seen in a long time.
Chris: Thanks, William. It sounds intriguing. I know Teeka’s presentation is still online. So the best thing for folks who are interested is to head there for more details.
William: Absolutely. Teeka knocked it out of the park last night. So I encourage any of your readers interested in starting as a pre-IPO investor to go check it out while it’s still online. You can view it for free here.
Chris: Thanks for chatting with me, William.
William: Anytime, Chris.