Crowdfund Investing and IPOs

The chances of your crowdfund-invested company getting an IPO are extremely small — minuscule, in fact. An IPO occurs when a company goes public — it lists its shares with a stock exchange for the general public to be able to purchase. IPOs can be the exit of all exits. They’re what some investors dream of when they invest in startup companies.

Many entrepreneurs and startup companies talk about getting an IPO, and they try to hype up their team and investors with talk of an IPO as the goal. No doubt, an IPO is a great goal to have, but it’s a very unlikely one.

To give you an idea of how small the chances are of your crowdfund-invested company getting an IPO, according to Forbes magazine, in 2011, there were a total of 153 IPOs. That’s right, 153. Compare this to the 500,000 businesses that incorporate each year. (Granted, a company can’t go from zero to public in one year, but these numbers illustrate the fact that an IPO is rare.)

Furthermore, the chances of your investing in a company at the startup stage via crowdfund investing and being able to keep your investment to the IPO stage are even smaller. The company will likely need much more growth capital along the way to get ready for an IPO. If the company raises professional capital, the chances of these investors buying out your stock are very large.

If you do get an IPO exit, woo-hoo! Start planning out how you’re going to use the boatloads of money you get. But if your investment plan is to hold out for the IPO, you may need to rethink your plan. Some companies do go public, and some crowdfund investors may gain a great deal when this happens. Just be realistic in your hopes.

If you have an opportunity to exit with a gain on your investment, that’s a great exit — even if it isn’t an IPO.

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