We haven’t looked into one of the overblown “buy private stocks” pitches for a while, so this one caught my eye… and it helped, of course, that they had a good hook — dropping hints about “private codes” usually gets my attention, and this ad implies that there’s a secret “cheat code” you can use to find pre-IPO companies.
So what is this “cheat code,” what are they talking about with these Pre-IPO deals, and, perhaps most importantly, what’s this “next $1 billion unicorn” they say they’re recommending now? Let’s dig in and see what we can find.
We should start with who the “they” is. The pitch is for Private Market Profits, a $995 subscription (30-day refund) offered by the private investing site Crowdability, helmed by Matt Milner. They promise to offer up one investment recommendation per month, like most investing letters, but in this case they’ll all be private investments — which really just means, “stocks that aren’t listed or traded on the stock exchanges.”
I’ve covered I think just one pitch from this particular newsletter before, when they were pitching private investments in the “Space WiFi” stock Solstar in 2019 and 2020, though we do see private investments teased pretty regularly by a bunch of newsletters, with the most aggressive pitchers probably being the “Angels & Entrepreneurs” and cannabis folks over at Money Map Press (and, spoiler alert, I’m not often convinced that these pitched private investments are a reasonable risk).
Here’s how this latest one from Crowdability gets our attention:
“Write this number down immediately: 0001139685
“This secret “code” could help you turn a small $1,000 investment into $24,970…”
Can you guess which words the lawyers insisted on adding to that headline? We know there’s always a qualifier, so “could” is a gimme… but I’ll bet the legal team said “help you” is important, too.
That’s because those code numbers, while they do exist, are really only marginally useful — and that’s being kind. They can offer a tiny bit of help in confirming a company’s identity, or researching what they’ve filed with the SEC (yes, if you raise money by selling equity or debt you typically do have to register with the SEC, even if you don’t intend to list on a stock exchange), but you can’t just search for those numbers, plunk down your $1,000, and become a millionaire.
So we’ll start with that — what are those numbers? Here’s how Matt Milner describes them:
“Baked into the ‘DNA’ of each of these breakthrough tech startups is what I call a ‘Pre-IPO cheat code…’
“And these ‘cheat codes’ could get you into the startup while it’s still private — in the words, you could invest in it before its IPO.
“Each code is exactly 10 digits long.
“And just like human DNA is unique to just one person, each of these codes is unique to a specific startup.
“To be clear — these codes aren’t stock market ticker symbols. And they’re not codes for corporate bonds, options, warrants, or anything else you may have heard of before.
“But once you know these codes, and once you know the specific websites that list them…
“You can invest in these companies before they go public… and that’s how you can position yourself for huge windfalls, right alongside the wealthy and the well-connected.”
Well… sort of. The “cheat codes” he’s talking about are just the CIK numbers given to companies when they register with the Securities and Exchange Commission — a serial number for a company, more or less, used to help make sure that companies (or other filers) with similar names are not confused, and that all the filings for that relevant person or company get combined together into one place. Knowing the CIK number perhaps makes it slightly easier to look up a company in the SEC’s EDGAR database of company filings, but usually just knowing the name is enough.
That doesn’t really help you to find out about new offerings, though… or to determine which ones might be most appealing to you, or might still be open to new investors. The CIK says much less about the company it’s attached to than your Social Security Number says about you.
So no, there is no “cheat code” to riches in private investing. But let’s dig into what he’s talking about a little bit.
The explosion in “Pre-IPO” companies (and in the ranks of websites and newsletters professing to pick such companies for you) was caused by the newly relaxed rules from the SEC over the past decade — what we’re usually talking about are Regulation A/A+ offerings, which were created by the JOBS Act in 2012 and amended (to create A+) in 2015.
Effectively, Reg A lets companies raise smaller amounts of money from individual investors without facing the stringent SEC registration requirements that typically accompany an IPO, and lets them raise money from pretty much anyone … as long as they raise less than $50 million (and the rules are even easier for “Tier 1” companies raising money under Reg A+, which means they raise less than $20 million in a year). It used to be more cumbersome for small companies to raise money outside of the venture capital ecosystem, and it was also generally true that private placements of equity like this were restricted to “accredited investors” — basically, people who had enough money that they could essentially attest that they could afford to lose their entire investment ($200K in annual income or a million dollars in investable assets has been the rule for “accredited” status, though that was expanded last year to include “people who can prove they know what they’re doing,” like people with certain certifications or credentials in the investment world… most of which would meet the other criteria anyway). Those rules were there to protect small investors from getting scammed — but yes, it also means they got left out of some private investments.
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These unlisted private companies who are raising money still have to file with the SEC (and thus they get that CIK number), but it’s far simpler than the back-and-forths you see with a company doing a large IPO or secondary offering through a prospectus, and the small ones don’t have to continue to file regular earnings reports or anything like that, or even annual reports. There’s a pretty good basic overview from the SEC’s Investor.gov website here.
How does that help you find these companies? It doesn’t, not really, it just might make it slightly easier to research them once you have identified them. The “finding” part for private offerings is not so different than “finding” public stocks you want to buy — private companies who need capital publicize themselves, they join marketplaces (private funding marketplaces instead of stock exchanges, in this case), and, in a junior version of the IPO roadshow to pitch to institutional investors or the CEO’s appearance on CNBC for a “real” IPO, they hire or work with brokers and distributors and they hit up anyone with a following (newsletters, social media. etc.) to get the word out and try to drum up interest. Some of them are much better at this than others.
The idea from the newsletter’s perspective, of course, is to pitch these as “back room deals” where you have to be “in the know” to get a piece of these hot business ideas… and the reality, as you might imagine, is usually far different. These are little startup companies who are trying hard to raise money, promoting themselves and paying marketplace companies like SharesPost or OurCrowd or MicroVentures or StartEngine or EquityZen or whoever else for advertising or access to investors, and they are in most cases thrilled to get your attention and are trying to figure out how to attract investors. A lot of these companies are trying to pitch and sell these ideas, though there are certainly rules about what promises they can make in advertising, it’s just that they don’t have huge marketing budgets so they probably haven’t reached you yet unless you’re actively looking on those kinds of platforms (or getting pitches from middlemen, like the newsletter publishers).
And despite what the ads for these companies all try to imply (if not actually say), you do not have to be in a “club” or pay for a subscription to participate in most private fundraisings from these kinds of companies… though, to be fair, it is true that it’s a confusing world and paying someone to do the work for you to screen out these companies has some appeal if you don’t intend on making it a hobby to become a small-time angel investor. That involves a high degree of trust, though, because these kinds of companies are NOT liquid investments — once you’re in, there’s no guarantee that you’ll be able to get out… and the odds are not good, as you probably know intuitively, that the company will grow to the point that it goes public and gets some liquidity and becomes traded on an exchange where you could then easily sell your shares. Some do, every once in a while you might find a great private company whose product or service or management team you love, want to support, and make money from, and that’s the dream, but many will keep raising money for years before they become real cash-flowing businesses, and many will be worth less or have disappeared entirely five or ten years from now.
And the promise is always that you can get into a great world-changing company like Facebook or Twitter before anyone else has heard of them… which is probably a daydream that it’s best to get out of your head before you pull out your credit card.
You know who doesn’t need to hit up individual investors for $2,000? Anyone with a really sexy idea, or an established business that’s growing revenue and has obvious potential to scale. They can get a huge check from a venture capital firm or even just one wealthy individual, and immediately get some experienced board members and advisors and plenty of cash to get the business juiced up fast. Yes, it’s possible that some small entrepreneurs don’t want to follow that path — they want to keep full control, or they had bad experiences with VC investors in the past… but this is not Facebook and Twitter we’re talking about here, these are generally extremely early stage companies in niche businesses who have not yet proven the commercial viability of their product in any meaningful way.
They do drop some examples… Twitter is one of them, so how do they pitch the idea that you could have used a “secret code” to buy into Twitter? Here’s a little from the ad:
“But in case you don’t believe me, take a look at this screenshot of Twitter’s Pre-IPO Cheat Code from a public government database:
“See the 10-digit number in the red circle?
“That’s the “cheat code.”
“The key here is this code was assigned BEFORE Twitter went public.
“And don’t worry if this screenshot looks complicated.
“This is simple. You’ll see how it all works in a few minutes.
“The key thing to remember is this:
“If you can find the Cheat Code to these companies before they go public…
“And if you know how to get your money in early…
“That’s how you get a shot to multiply your money exponentially. That’s the secret to making this work.
“In other words, by using the “Pre-IPO cheat codes” — in the specific way I’ll show you how to do today — you can claim a real ownership stake, real equity, in these breakthrough companies.”
So yes, that is Twitter’s CIK code. And yes, they registered with the SEC several years before they went public in 2013, because they were raising money from venture capital investors as early as 2007 — but they weren’t selling shares directly to small investors like you and I, they were selling to big venture capital firms and strategic partners. The only feasible way for you and I to buy shares of Twitter before 2013 would have been through one of the few publicly traded funds that owned Twitter shares (in 2012 and 2013 pre-IPO, GSV Ventures was the way to get exposure to Twitter if you were a small investor — that fund later became SuRo Capital (SSSS), it has ridden the pre-IPO popularity of hot stocks for years, first Facebook, then Twitter, then most recently Palantir). Twitter was not asking you for $1,000 to jump aboard in 2008 or 2009, and they wouldn’t have taken it if you offered.
Similar story with Square, which is also talked up as a past winner:
“Square had a secret that few investors know about.
“It had a Pre-IPO Cheat Code… it was 0001512673.
“And if you’d known this 10-digit code….
“And if you’d found a way to invest in Square’s pre-IPO shares…
“You’d be sitting on a return of 250,100%!”
It’s not knowing that 10-digit code that’s hard, anyone can find that — it’s that second “if,” “if you’d found a way to invest in Square’s pre-IPO shares.” That’s not so easy with any company that has any brand power or established business — they don’t need to recruit small investors, and their shares of popular ones are almost never available in the private markets, or if they are available it’s very near IPO time, when they’re already multi-billion-dollar companies and there are some insiders who want to sell on the secondary markets because the IPO is taking a little longer than they had hoped (and sometimes, those late private sales in the year or two before the IPO take place at higher prices than the company eventually trades at after it goes public — not so much this year, when investors have been IPO-obsessed, but that was common in years past).
They do get into what this “Cheat Code” is later on in the presentation…
“Well, once you know a company’s CIK code, you can see every piece of information that it’s required — by law — to file with the SEC.
“And for investors like us…
“This information is a gold mine…
“For example, it reveals the size of the market opportunity the company is targeting…
“How big the company could get in the future…
“And how much money we could potentially make from an early investment.
“It also reveals who else has already invested, who the company’s competitors are, and how soon the company could potentially go public or get acquired.”
But, again, knowing the CIK code doesn’t really tell you anything that knowing the name would tell you. Yes, companies will file their required info with the SEC (though it’s quite limited in some cases), and yes, you can find it if you know either the name or the CIK code. But really, that’s like saying, “the secret to finding great investments is to know the name of the company so you can research it.”
Also, in further top-secret news, the way to cheat the system is to research something before you invest in it.
So that’s the basic backdrop — no, this ain’t secret, a CIK number is just an identifying number for a company in the SEC’s database. And, to overstate the obvious, most tiny startups are junk and never go anywhere and lose all their money — this is not an area to get involved with unless you want to really dig in and get to know the company as well as a board member might. I’m not going to do that for you, but I can at least get you started on ID’ing this particular investment.
Which company, then, are they promoting? Well, a quick look at that CIK number would get you there awfully fast… but let’s do it the old fashioned way, with a look at their clues…
“… we’ll be providing specific recommendations about which pre-IPO deals to get into, including your very first recommendation: “This Tiny Startup Could Be The Next $1 Billion Unicorn.”
“… this tiny private company takes advantage of what I call a technology “super-cross.”
“A super-cross is rare. It happens just once every few years.
“It takes place when two massive tech trends cross paths for the very first time — and for early investors who understand what’s happening, it can create a “big bang” of profits.
“For example, when the internet crossed with social media, companies like Facebook and Twitter went to the moon.
“When smart phones collided with biometrics, the shares of Apple’s “secret suppliers” skyrocketed.
“And now there’s a new super cross — and I’ve found what I believe is the best startup to take advantage of it.”
Milner says he owns stakes in 57 different startups, and the examples he gives of the type of company that “could potentially help you pocket gains of at least 1,000%” include some of the private companies that have been pretty widely promoted by pre-IPO marketplaces and newsletters in the past, like LiquidPiston and Solstar, as well as some others that I don’t know offhand like Leaf, Beat Bionics, HelloMD and Circle Medical, and Milner says he recommended private investments in Cruise Automation and ReWalk Robotics in recent years that would have led to 1,000% and 400% gains, respectively.
He does not mention any of the losers by name, though he does note the risks of private investing and note that this is a “money you can afford to lose” investment, and he points out that a major risk is the lack of liquidity and the need for a company to either get acquired or go public, on some uncertain timeframe, before you’re likely to be able to sell your shares (either at a loss or a profit). Those are not empty words, take them to heart.
But back to that tease about their latest recommendation:
“I’m going to show everyone on this presentation a Pre-IPO cheat code…
“A cheat code we’ve never revealed publicly before…
“A cheat code that could help them get into one of the most groundbreaking biotech companies we’ve ever identified…
“In fact, if my forecasts turn out to be correct…
“This single investment could hand investors profits of 2,497%… and possibly far more.”
So what’s the company?
“… it’s a biotech company.
“And it’s developed a disruptive new way to detect cancer at its very earliest stages.
“I’m sure we’ve all known someone… a friend… a family member… who’s suffered from cancer. It’s just awful…
“And as you may know, the key to beating cancer is to detect it while it’s still in the earliest stages.
“For example, if you can detect cancer while it’s still in Stage 1, meaning it hasn’t spread to the whole body yet, it’s much easier to treat and overcome.”
So apparently someone already has that “holy grail” cancer screening blood test that giants like Grail and Guardant Health and others are hoping to have by 2025? More from the ad:
“This startup has developed blood tests that look for the biomarkers that accompany cancerous cells.
“Using the three trends I told you about — Big Data, Artificial Intelligence, and Machine Learning — its system alerts doctors to the potential threat of cancer, and makes them aware that follow-up testing is needed immediately.
“And furthermore, this test doesn’t require CT scans, or x-rays, or any radiation exposure at all.
“It only requires a single draw of blood.
“And from that single blood sample, this test can screen for several cancers at once — including liver, pancreatic, and cervical cancers.
“And at $149 per test, it’s very affordable.”
OK, so we already knew the name of the company, since they gave us the CIK code, but now that we’ve confirmed it with all the clues and hints we can say that yes, this is 20/20 GeneSystems, a p