Investing in pre IPO ventures can be extremely risky. On the other hand they will not all fail or turn out to be fraudulent. This is the normal way of raising capital for new start ups. Through the exercise of due diligence before buying into the company returns can sometimes be realized up to triple digits.
There must be a viable enterprise existing before stock can be offered in an initial public offering. The promoters of the ideas for a new company must raise the necessary capital needed to start up. When getting involved at the ground floor, the initial investors will gain the chance to make stellar returns, or to loose most or all of their investment.
Some such offers are not really investment opportunities at all. They are out right fraudulent scams designed by criminals for the purpose of separating the investor from his money. A legitimate investment opportunity will be registered with the Securities Exchange Commission, or fall under an exemption from registration.
Offers that come from strangers, or are not sought out, should be approached with the highest caution. Those that come to a potential investor by way of the internet, e-mail, telephone, or in person need to be looked at with skepticism.
These opportunities are only available, under SEC regulations, to sophisticated investors, or to qualified investors with a net worth of $1 million, exclusive of their primary home, or with annual income of $200,000 for the current and two previous years.
An unregistered security will not only be likely to be fraudulent, but it may be very difficult to find out any of this information about it. Reliable, current data will be hard to come by. The securities will also subsequently be hard to liquidate.
Due diligence should include investigating whether the company is a going concern. Find out what real products or services it offers, and whether you can understand them. See whether a physical plant exists, if there are customer contracts, and if they have an inventory. Obtain independently audited financial statements and evaluate them thoroughly. Determine whether the management is qualified for the job, and if they have made money for companies in the past. Also find out if they have been involved in violations of any laws, especially securities laws, or defrauding of investors.
Make sure there is an underwriter. This should be a real investment banker. It should be free of past complaints, or any record of fraud.
It will be very important find out any time restrictions on reselling of shares. Lock in periods may exist so as to attract only long term investors. Any such restrictions on liquidation of the investment may be learned though checking the Public Reference Room Circulars filed at the SEC under Regulation A or Form D of Regulation D.
Finally be warned that the pre IPO may never go public. Not all such investments will pay out. Hence the substantially lower subscription price, below the eventual public offering price. Remember also that the fair market valuations will be speculative and sometime hard to determine accurately. These investments are available only to those who qualify as accredited or sophisticated investors.
There must be a viable enterprise existing before stock can be offered in an initial public offering. The promoters of the ideas for a new company must raise the necessary capital needed to start up. When getting involved at the ground floor, the initial investors will gain the chance to make stellar returns, or to loose most or all of their investment.
Some such offers are not really investment opportunities at all. They are out right fraudulent scams designed by criminals for the purpose of separating the investor from his money. A legitimate investment opportunity will be registered with the Securities Exchange Commission, or fall under an exemption from registration.
Offers that come from strangers, or are not sought out, should be approached with the highest caution. Those that come to a potential investor by way of the internet, e-mail, telephone, or in person need to be looked at with skepticism.
These opportunities are only available, under SEC regulations, to sophisticated investors, or to qualified investors with a net worth of $1 million, exclusive of their primary home, or with annual income of $200,000 for the current and two previous years.
An unregistered security will not only be likely to be fraudulent, but it may be very difficult to find out any of this information about it. Reliable, current data will be hard to come by. The securities will also subsequently be hard to liquidate.
Due diligence should include investigating whether the company is a going concern. Find out what real products or services it offers, and whether you can understand them. See whether a physical plant exists, if there are customer contracts, and if they have an inventory. Obtain independently audited financial statements and evaluate them thoroughly. Determine whether the management is qualified for the job, and if they have made money for companies in the past. Also find out if they have been involved in violations of any laws, especially securities laws, or defrauding of investors.
Make sure there is an underwriter. This should be a real investment banker. It should be free of past complaints, or any record of fraud.
It will be very important find out any time restrictions on reselling of shares. Lock in periods may exist so as to attract only long term investors. Any such restrictions on liquidation of the investment may be learned though checking the Public Reference Room Circulars filed at the SEC under Regulation A or Form D of Regulation D.
Finally be warned that the pre IPO may never go public. Not all such investments will pay out. Hence the substantially lower subscription price, below the eventual public offering price. Remember also that the fair market valuations will be speculative and sometime hard to determine accurately. These investments are available only to those who qualify as accredited or sophisticated investors.
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