What are Crossover Investors?
They invest in several types of markets to grow their wealth quickly, including both public and private markets.
Crossover investors try to buy a significant stake in growing businesses before they go to an initial public offering (IPO). This means that crossover investors accumulate more stock at a discounted rate than investors who choose to invest once the business goes public.
While it’s common for crossover investors to invest just before a business goes public, they tend to invest at different life stages of a business to maximize their returns.
How crossover investing works
Unlike buy-and-hold investing that looks at long-term performance, crossover investing is concerned with short-term returns. Crossover investors don’t focus on one type of investment; instead, they invest in multiple categories and markets to make the most returns possible in less time.
Crossover investors are known for investing in businesses at various stages, ranging from seed round funding to an IPO. They try to get their foot in the door early to see greater returns before an IPO.
Since the average tech company is more than 12 years old when it goes public, crossover investors look for investment-ready businesses that are about to offer an IPO. This makes sense in many industries where companies are waiting longer to go public; a crossover investor can quickly make money on an investment if they join right before an IPO.
This is especially valuable if an otherwise high-performing business downgrades its credit rating or otherwise loses potential. Crossover investors will swoop in on investment-worthy businesses in need of help to get in while shares are cheap.
Aside from investing in public and private companies, crossover investors also make their fortune in:
- Mutual funds
- Emerging markets
- Developed markets
- Hedge funds
- Debt markets
- Small family businesses
Crossover investors are more common in volatile and fast-paced industries such as technology. The risks are higher, but for crossover investors, the risk usually leads to more opportunities. They move fast, but skilled crossover investors know how to make money quickly.
The dangers of crossover investors
Although crossover investors experience a lot of risk with their investment strategy, they can have a tremendous impact on the market as a whole. Markets filled with crossover investors, like technology, will suffer if investors suddenly feel the risk is too high. If thousands of investors leave the market at once, companies in this sector can see a significant decrease in their value.
Unlike a buy-and-hold investor, crossover investors won’t wait around to see what happens. If they identify low performance on the horizon, they’ll look for other opportunities. Crossover investors’ speedy departures can make it difficult for businesses in their market to secure financing, so this investing method can have a significant ripple effect on an industry.
Keep in mind that there are notable legal considerations that come with crossover investment opportunities. So it is prudent to do your homework before investing in this type of opportunity or offering it in your own business.