Pre-IPO investing has risks, and the United States Securities and Exchange Commission offers a variety of tips to would-be investors, including regarding the following four topics:
1. Company Information: When considering a pre-IPO investment, always independently verify the information that the company provides about itself. Pertinent information includes, but is not limited to, the company's products, customers, physical location, and audited financials.
2. Specifics about the Investment: It's important to understand the details of the investment; for instance, whether or not you can liquidate your investment should the company never go public and whether the securities offering is subject to an exemption.
3. Background of the Leadership: Sometimes, looking into the business-related history of the company's management can expose unscrupulous promoters. In particular, try to find out whether members of management have ever violated federal securities laws.
4. The Identity and Existence of the Underwriter: Many companies have an investment banking firm that underwrites their offering. This can be a good place to expose fraudulent offerings. Your local state securities regulator should have information pertaining to any past fraudulent activity.
For a more complete list of considerations related to pre-IPO investing, visit the website of the United States Securities and Exchange Commission, www.sec.gov.