A 'Pre-IPO Investment' or 'Pre-IPO Placement' occurs when part of an IPO is sold to private investors just before the IPO hits the market. These investors, often large private equity or hedge funds, buy shares at a price typically lower than the IPO price. In the last decade, the number and frequency of accredited investors in pre-IPO placements have increased.
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A pre-IPO placement is money raised by a company before going public, with shares sold at a discount from the expected IPO price. The exact IPO timing and share price are uncertain. These placements occur when there's high demand for an upcoming IPO. The risk is that post-IPO demand may be lower than expected, reducing the share price. To compensate for this risk, shares are offered at a discount. A lock-up period usually prevents short-term selling, attracting long-term investors.

Before going public in September 2014, Alibaba offered a pre-IPO placement to large funds and wealthy investors. In June 2014, the company was valued at $150 billion, generating strong demand. Investor Ozi Amanat bought $35 million in pre-IPO shares, distributing them among Asian families at under $60 per share. When Alibaba went public, the high demand resulted in returns of at least 48% for these investors. This pre-IPO placement helped Alibaba secure adequate funding and mitigate risk before its IPO.