How to buy shares of tech companies at 4 times more expensive?

We will talk about the Pre-IPO area, and this market is slightly different from ordinary investments in exchange-traded shares. If you don't know what a Pre-IPO is, let me explain: before companies go public, they typically raise money from funds and individual investors by issuing shares. That is, Pre-IPOs are those companies that are planning to list their shares on the stock exchange in the next 1-2 years.

It is much more difficult to buy such shares, and the minimum transaction amounts start from hundreds of thousands of dollars. But at the time of listing on the stock exchange (IPO), these shares have a good chance of growing significantly.

So that you have an understanding of what we’re talking about, I’ll briefly describe the difference:

Public stock market*
There are three main participants: investors, brokers and exchanges.
The stock market is familiar to almost every person. The investor, through an intermediary, makes transactions, trades and invests. The broker gets a commission, the investor invests and everyone is happy.

With stock investments, everything is transparent: the value of the stock at the moment and for any past period is visible, the supply/demand table is open, and analytical tools are available to brokers.

Non-public market (Pre-IPO)*

This is a little different, and instead of brokers, funds come into play. They are also called syndicates. The difference between a fund and a syndicate is that the fund collects money once and then, at its discretion, distributes it among different shares, while the syndicate collects funds for each transaction separately.

Both are organizations most often founded by experienced investors or financiers. They also act as intermediaries, but not because the system requires it. The availability of PreIPO shares is seriously limited by price, and if you decide to buy them for $5,000, nothing will work out – the minimum lots cost tens of times more. Companies do not trade through the exchange, but directly, in large lots of shares. Data about such a market is not public at all.

Investors turn to funds to help them purchase shares. The organizer of the transaction creates a pool of investors, who collects the amount to purchase a lot of shares. Conventionally, 10 people chipped in $10,000 into the fund, the minimum amount was reached: and the fund buys shares and distributes them in shares.

*The above diagrams are very simplified, but do not distort the essence of the markets. And they will be enough for us to finally go over to the dark side.

Dark Market

As I said, the Pre-IPO market is not public.
It is not black or gray, but quite legal. But you won’t see quotes or offers like on the stock exchange – they simply don’t exist.

There is very little information about Pre-IPO, it circulates in narrow circles, and on certain issues the Internet is completely powerless.

It is difficult for an ordinary investor to find out information about the price of shares: you can ask directly from brokers, funds and other involved parties. If there have been transactions on the desired shares, they may well be able to name prices from existing orders, but there may be a catch here. You will come across a transaction price set by the seller or buyer that is too high or low. Because the broker does not care what price market participants set – their task is simply to connect the seller and the buyer. And if the fair market price of a stock is $10, the seller may suddenly try to sell it for $20.

(You've probably seen orders on the stock exchange or in p2p at fabulous or absolutely meager prices – this happens, and yes, someone needs it).

A very small percentage of people understand how to obtain information: despite the legality of the market, it is still “in the shadows,” but below I will explain how to solve this problem.

Let's capture the thought and let's figure out how darkness can be used by individual players using the example of the famous company Discord. They have not yet listed their shares on the stock exchange, but they are actively traded on the Secondary Market.

The first is clear from the name – the investor deposited an amount, the percentage automatically goes to the fund to cover administrative costs for organizing the transaction and maintaining the structure. Success fee (Carry) is charged as a percentage of the net profit of investors at the time of exit from the transaction or closing of the fund, this is the main motivation of investment managers.

According to the rules of the funds, they cannot otherwise make money on other people's shares: only through commission payments. But some funds have found a way to receive much more client money, which on the one hand seems to be legal, but on the other hand shouldn't happen. And this is what happens:

The average market price of Discord shares at the time of writing is about $230 per share. That is, if I contact the fund with the desire to buy 100 shares, I contribute $23,000. Visible I don’t consider the entrance fee for the investor, because… It's pretty much the same for everyone…

But there are some players who are selling shares of this Discord for, attention, $800/piece.

One share is almost $600 more expensive than the market one

And this money goes into the pockets of the foundations.
For the same 100 shares a person will pay $57,000 more, i.e. will overpay three times.

– [Цензура]! – you say.
And you will be absolutely right, because this is even tougher than the situation with the price of cars in Russia.

Here is a screenshot of the price list from the website of one such fund:

While the article was being created, the price even increased a little :) — While the article was being created, the price even increased a little 🙂

Here is another example, with shares of the Kraken exchange:

We see a price of $19 per share, when the market value fluctuates around $10-11.

Such a scheme is carried out by the fairly well-known Regolith fund.
A website with an incredibly beautiful and user-friendly design, a chic application, high-quality presentations, and merch – a new investor is immediately presented with the image of a serious company that spares no resources on its appearance.

[img] – something about the beauty of the Regolith brand

In video presentations (and, in principle, almost everywhere in the public field) a man named Alexander Chikurov appears, who introduces himself as the co-founder of the fund. A man with a well-spoken and measured speech quite deftly tells how and why you need to invest. To understand the fund’s position, let me give you a short summary of the video presentation from YouTube:

– Average profit for the portfolio shown in the video is 60-80%
– Average transaction duration: 3 months
– Share of profitable transactions from the total number: 92%
– Average trade profit: 86.42%

And that's just in the first six minutes of a 42-minute presentation.

However, here we are talking not only about the Pre-IPO, but also about the work of the fund as a whole.

You may ask: how do you know the real market prices?
And everything is quite simple: firstly, I googled it, and secondly, I compared it with the prices of other funds.

There are, for example, website where you can look at the prices of shares of private companies, as well as study the pricing chart of a particular stock. As experts say, the price there is often not accurate, plus, on a free account there is a delay of three months, but nevertheless, it will not differ by orders of magnitude from the real one.

Here's the Discord price:

And here's Kraken:

The jump down occurred in mid-October 2023

Here is the current price per share on Kraken for another fund.

The price is already higher than the market price, but the picture is more than good.

It is legal?
People who do this naturally take risks.
All funds are registered not in Russia, but in the USA or Europe. In these countries, in addition to the opportunity to find the “money” button, there are also such guys as financial regulators, whose job is to monitor the activities of all market players, including the Pre-IPO sector.

According to the regulator, it is unacceptable to sell shares at excessively inflated prices – this undermines investor confidence in the market as a whole. Although formally, there is no law prohibiting the sale of shares at the set price – the market is a complex thing. Sooner or later, the regulator catches such players for the same thing. But alas, it is often too late, when many people have already brought them a lot of money.

But the most important thing that regulators, especially the US Securities and Exchange Commission (SEC), are struggling with is misleading investors. Those. when the organizer of the transaction sells Discord at $800 per share instead of $230, this is not yet a crime. But when during this sale the organizer says something like “This is the lowest price on the market” or “This is a very good investment”, or “The shares will definitely cost more” – this is already a crime, because here the financier simply lies to his clients, pretending that he is playing on the same team with them and will make money only if the investor makes money. In fact, his main motivation may be the process of selling shares.

It may turn out that the investor is purchasing not exactly shares, but forward contracts. This is not an exchange transaction in which you and the seller of shares form an agreement to sell them when the company goes public.

The investor thinks that he owns shares in the company, but in reality he simply has a legally binding promise that the current shareholder will transfer his shares to the investor under an agreement under which payment in full is made immediately upon its conclusion, and he will be able to dispose of them when such an opportunity arises ( stock listing).

This could happen in a couple of months, or maybe in a few years, and what will happen during this time to the shareholders and their shares is unknown even to God. For example, a shareholder may lose all his shares if he is fired from the company, or he may have a spouse without whose permission the contract could not be concluded, or he may simply not fulfill the terms of the contract and suddenly disappear. In any such case, the seller of the shares will have to go to court, and the trial may last for years, and even if the investor wins the case, this money will then need to be recovered from the seller. If the company goes bankrupt, you will lose absolutely all your money. This is risk multiplied by risk.

It is more profitable to purchase a forward contract, but some funds are in no hurry to call it such, and in their beautiful presentations they repeat that you are buying shares.

How not to become a hamster?
Especially if you want to invest no matter what.
These recommendations apply to the Pre-IPO market, but are suitable for any type of investment. So, you need:

First, find out the prices.
Check with several competing funds. Regardless of the approach, they are all interested in buyers and will give you a price. Compare 3-4 sources, and most likely you will understand where the price is significantly inflated.

Second, don’t fall for marketing.
A beautiful and convenient website, live telegram, YouTube and Instagram* channels, promising and competent presentations or speakers, biography of the founders and representatives – all this is the same as the appearance of an establishment in a food court. Beautiful siding and a smiling cashier do not mean that a nice and clean kitchen awaits you inside.

Absolutely every financial figure will tell only the best about himself.
Just because a person has a reputation and background does not mean that all of their methods are bona fide.

Third, read the contract in its entirety.
Even if it's English/Arabic/Polynesian.
You definitely need to know what exactly you are buying. An offer from a fund may read “Invest in Discord shares,” but in fact these may be forward contracts, i.e. receipts from the real owner of the shares with a promise to transfer the shares to the investor in a few years. If you are investing tens of thousands of dollars, you will probably find the money to consult with a lawyer – this is also an investment in your investment.

Fourth, study failure.
Based on their analysis, it is very easy to understand who you are dealing with.
If a fund publishes information only about successful transactions and paints rosy pictures, most likely you are not dealing with a very good fund. The market does not consist of natives and successful success. The market works like the weather – while somewhere the bright sun is shining and the birds are singing, in another place a hurricane is destroying entire settlements. Talking about all your transactions, even if there is a fiasco, is a difficult position that not everyone is ready to endure.

Fifth, diversify.
The golden rule of the market in any area: you cannot invest in just one thing. By the way, unscrupulous funds often call for purchasing one or two assets for the entire cutlet. Never do this, and distribute your investments between different companies.

Investments are always a risk.