Pre-IPO LoansGrowing your Offering by Bringing in New Resources
A Pre-IPO loans is a specialty product in the securities-based lending market, and very few operate in the space.
As more startups and businesses offer equity to employees before listing, this type of finance is increasingly sought-after.
This type of financing works in much the same way as straightforward securities backed lending does. Your equity will be used as collateral for the purpose of a loan in return.
It’s here that pre-IPO loans diverge from their plain vanilla counterparts in other areas of the securities backed loan market. Pre-IPO loans are very complex because there are a lot more constraints and risks than using a diverse portfolio of high-volume stocks listed on major exchanges as collateral for a loan, for example. There are many aspects to consider, but some of the main points to contemplate include:
- Valuation of your shares (which may well be different than your company’s valuation of the shares)
- How much (and, in some cases, if) your equity is expected to increase in value after the company is listed
- What is likely to happen to the business after the IPO (if management is likely to stay on board, if new team members will be bought in, etc.)
- When the business will list
- How you will exit the loan
- How much you want to borrow
- Legal considerations like lock-up periods, covenants and policies that will affect share ownership or share transfers
- The overall risk level of the transaction
Pre-IPO stock loans are offered on a truly case-by-case basis. Most providers will likely prefer lending to shareholders whose businesses have publicly announced that they intend to list within the next 12 months or have already started the IPO process.
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