Investing in Scale Stock | How to Buy Pre-IPO Shares

In less than a decade, Scale AI has managed to become a leading force in data labeling and model training for artificial intelligence.  It has done so by revolutionizing the way businesses approach machine learning.

Its mission is simple – provide companies with the ability to train and build AI systems by harnessing high-quality data.  By providing reliable data labeling, annotation, and data pipeline services, Scale enables businesses to build scalable AI models efficiently, solidifying its role as a foundational player in the process, in what is a rapidly growing industry.

Fueling Scale’s Growth

Scale’s successes aren’t due solely to its cutting-edge technology; rather, it has been built upon various partnerships with industry giants and government agencies like Microsoft (MSFT +1.15%), Toyota, and the U.S. Department of Defense.  These alliances highlight Scale’s capabilities and demonstrate the effectiveness of its solutions in a wide range of sectors (e.g., autonomous vehicles, national security, etc).

By demonstrating a steadfast commitment to delivering high-quality training data, Scale has become a trusted partner for leading AI companies.  It facilitates integrations across complex workflows and ensures it meets the highest data quality standards.

A Promising Pre-IPO Opportunity in AI Data

AI adoption is ramping up at an amazing pace.  With that in mind, Scale appears poised for exponential growth on a global scale, which may make it a promising pre-IPO opportunity.

Scale’s comprehensive AI data solutions perfectly align with the increasing demand for AI-driven technologies.  This presents a compelling case for investing in the company – specifically for those looking to gain exposure to the AI data sector before Scale’s anticipated public offering. Like any pre-IPO investment, early investors could reap significant benefits, but it’s crucial to understand the risks and associated limited liquidity.

What Makes Scale Unique?

Founded in 2016, Scale has rapidly established itself as a key player in AI data solutions.  As mentioned, by focusing on high-quality data annotation, model training, and data validation, Scale looks to address critical ‘pain points’ in AI model development.

Its proprietary platform, Nucleus, centralizes data labeling and analytics, allowing clients to streamline data management and gain insights across vast datasets.  This end-to-end AI data pipeline enhances model accuracy and efficiency, making Scale an indispensable partner for companies seeking a competitive edge in the AI space.  Now, the company has launched ‘Agent Donovan’, as seen in the video below.

Key Features and Advantages:

• Comprehensive Data Solutions: Scale provides an all-in-one platform that supports data labeling, annotation, and model validation, simplifying the development process for AI applications.
• Efficiency and Speed: By automating data labeling and quality assurance processes, Scale accelerates the time to deployment, reducing costs and improving model performance.
• Scalability: From small projects to massive enterprise needs, Scale’s infrastructure supports rapid scaling, accommodating evolving data requirements across industries.
• Interoperability: Scale’s platform seamlessly integrates with existing data pipelines, enabling companies to manage diverse data types and deploy AI across multiple use cases.
• Human-in-the-Loop: Scale uses a combination of AI and human annotation, ensuring quality control and adaptability across complex data sets, especially for nuanced or subjective tasks.
• Security and Compliance: Scale prioritizes data privacy and compliance, especially in sectors like defense and healthcare, adhering to strict security standards.

Historical Funding Rounds

Like any company, financial backing is crucial for actualizing rapid growth.  When it comes to Scale, the company has already raised significant capital across several rounds, with contributions from prominent venture capital firms.  These partnerships have already bolstered Scale’s potential for growth, while simultaneously validating its standing within the tech ecosystem, providing it with the resources to continuously innovate and expand.

Summary of Scale Funding:

• Total Funding: Scale has raised approximately $1.6 billion across various funding rounds.
• Largest Round: The largest round was $1 billion, raised in the Series F on May 21, 2024.
• Investors: Scale is backed by a mix of institutional, corporate, and angel investors, including prominent names across each category.
• Latest Round: The latest funding round was a Series F on May 21, 2024, with $1 billion raised.

Funding Rounds Breakdown:

• 1 Series F Round: $1.0 billion (May 21, 2024)
• 1 Series E Round: $325 million (Apr 13, 2021)
• 1 Series D Round: $155 million (Dec 01, 2020)
• 1 Series C Round: $100 million (Aug 05, 2019)
• 2 Series B Rounds: $18 million (Aug 07, 2018), undisclosed
• 1 Series A Round: $4.5 million (May 01, 2017)
• 2 Seed Rounds: $120,000 (Jun 01, 2016), undisclosed

Key Investors:

Prominent investors, including Tiger Global, Founders Fund, and Accel, are among the prominent names backing Scale, adding both credibility and growth potential.

Funding data is sourced from Tracxn.

Why Scale Is an Attractive Investment

While it has not officially announced an IPO as of yet, it is safe to say that this will most likely occur in the near future based on the company’s performance and growing list of investors that will undoubtedly like to see their leap of faith pay off.  With that in mind, Scale’s eventual IPO represents an opportunity to invest in a key player at the intersection of AI and data, a sector expected to experience substantial growth. Several factors make Scale an attractive pre-IPO investment:

1. Addressing a Crucial AI Challenge: Scale solves one of AI’s core issues—quality data for training—making it indispensable for a wide range of applications.
2. Established Partnerships: Scale’s high-profile clients and partners indicate a proven, valuable solution for global enterprises.
3. Market Timing: As AI adoption grows, Scale’s position within this market is increasingly valuable, potentially driving demand for its shares once public.
4. Funding for Innovation: An IPO could provide Scale with the necessary funds to deepen its R&D and expand service offerings.

Broadening AI Service Offerings

Scale’s continuous innovation is evident in its expansion into areas like synthetic data generation, computer vision, and natural language processing. By branching out, Scale captures emerging AI market segments, allowing the company to meet its clients’ evolving needs. Scale’s focus on broadening its capabilities highlights its adaptability and commitment to driving AI advancements.

Regulatory Clarity

While Scale doesn’t face the same regulatory scrutiny as financial companies, its involvement with government contracts and sensitive data brings compliance and security considerations. The company’s attention to data privacy and regulatory adherence helps solidify its reputation as a reliable provider in the AI industry.

How to Buy Scale Pre-IPO Shares

With Scale preparing to go public, investors may be exploring pre-IPO opportunities. Purchasing pre-IPO shares in a private company can be complex, but here’s a breakdown of how it’s possible:

1. Pre-IPO Secondary Marketplace

A secondary marketplace allows investors to buy shares of private companies before their initial public offering (IPO).  These platforms connect accredited investors with current or former employees, early-stage investors, or insiders who may wish to sell their private shares before the company goes public.

Pre-IPO marketplaces offer a chance to invest in companies during high-growth phases, often at a lower valuation than what they may command once public.  Several secondary marketplaces provide accredited investors access to shares from employees, early investors, or venture capital firms with equity in Scale.

Things to Consider:

• Eligibility: Typically, you must be an accredited investor, meaning you must meet certain income or net worth requirements.
• Liquidity: Shares purchased in secondary markets may be illiquid until Scale goes public, meaning you may be unable to sell them easily before the IPO or acquisition.

Some platforms like Linqto offer access to shares of high-growth private companies.  Linqto’s mission is to make private investing accessible, with lower entry requirements than traditional private equity.  Past offerings on Linqto have included companies like Robinhood and Coinbase.

Visit Linqto →

2. Private Equity Firms

Private equity firms or venture capital (VC) funds may provide limited opportunities for high-net-worth individuals to invest in Scale.  These firms often acquire shares directly from existing shareholders or participate in funding rounds.

Considerations:

• Access: Significant capital is usually required, as private equity firms often deal in large transactions.
• Long-Term Horizon: These investments typically come with a longer-term commitment, and liquidity may be limited until a public offering or company buyout occurs.

3. Employee Equity Sales

Employees of Scale may receive equity as part of their compensation packages.  Sometimes, these employees may seek to sell some of their shares privately to generate liquidity.  Buyers may need to work with brokers or legal teams to ensure compliance with securities laws.

Key Factors:

• Private Transactions: Buying shares from employees can involve complex legal agreements, valuation concerns, and transfer restrictions.  Proper due diligence and legal compliance are essential.
• Brokerage: An investment broker familiar with private equity transactions can assist in negotiating and completing the deal.

Risks of Investing in Pre-IPO Shares

While the rewards of investing in pre-IPO Scale shares can be substantial, there are also notable risks:

1. Liquidity Risk Pre-IPO shares are typically illiquid, meaning you may not be able to sell them before the company goes public or is acquired.  If Scale continues to delay its IPO, you could be holding shares for an extended period without the ability to sell them.
2. Valuation Risk Scale’s valuation is based on private funding rounds and may not reflect the true market value when it goes public.  If the market does not align with the current valuation, early investors may not see the returns they anticipated.
3. Regulatory Risk As with any company, Scale could face changes in industry regulations or market conditions that could impact its profitability or IPO timing.
4. Market Risk As a pre-IPO investor, you are betting on Scale’s long-term success.  While its prospects are promising, factors such as economic downturns or market volatility at the time of the IPO could negatively affect stock performance.

Investing in pre-IPO shares of Scale involves both opportunity and risk.  Investors should carefully weigh their options and conduct thorough research before participating.

Valuation of Scale and Future IPO

Scale’s latest valuation, exceeding $13 billion, places it as a strong contender within AI and data services.  This valuation reflects its established position and unique offerings in the industry, focusing on solving critical challenges in AI data management.  Going public could provide Scale additional resources to expand and innovate further, attracting investor attention and solidifying its role in the AI ecosystem.

Conclusion

Scale offers an intriguing pre-IPO investment opportunity for investors interested in AI’s potential.  Positioned as a key enabler within the AI industry, Scale’s solutions address fundamental challenges in AI data management and quality, making it a pivotal force for companies aiming to stay competitive in a data-driven future.  Early investors could benefit from Scale’s growth, provided they are prepared for the inherent risks of pre-IPO investments.

Approach this opportunity with careful consideration, balancing potential rewards with your broader financial strategy and risk tolerance.  With its robust partnerships, market demand, and innovative solutions, Scale AI stands out as a promising investment in the AI revolution.

Disclaimer: This article is for informational purposes only and does not constitute financial, legal, or investment advice.  Pre-IPO shares are typically available only to accredited investors and carry significant risk.  Always perform thorough due diligence and consult a financial advisor or legal expert before making investment decisions.