Pre IPO Investment involves significant amount of risk. The securities purchased through Pre IPO Investment may prove to be illegal and the investor may lose his total investment value. Pre IPO refers to a situation, when the process of Initial Public Offering(IPO) has not been started by the respective company.
It is possible for persons to be involved in Pre IPO Investing even before the company opens up its IPO deal. There are several companies, which persuade the investors to make Pre IPO Investment by promising them high returns. In most of the cases, these companies are new business venture firms who are just starting their business and claim to have e-commerce facility.

But, this Pre IPO Investment is associated with significant levels of risk. It has been observed that many start up businesses publicize Pre IPO Investment by sending “spam” e-mails.

All these investment offers circulated through e-mails are actually illegal.

The Main Disadvantages or Risks Associated with Pre IPO Investing are the following:
If a person makes Pre IPO Investment, then it leads to holding unregistered securities. In this case, the investor will not be able to sell his security holdings until the respective company goes public. Moreover, if a person buys restricted securities from an issuer or affiliate of issuer through unregistered and private sale, then the investor will be unable to liquidate those securities before one year, even if the respective company starts its Initial Public Offering Process in the mean time.
An investor may find , that the securities, purchased through Pre IPO Investing are illegal. This is because, every company requires to register the transactions in order to legalize its Initial Public Offering and if any company escapes this registration process, then its IPO deal becomes illegal.
There is a possibility that the company, whose securities are purchased through Pre IPO Investing, fails to go public. If this happens, then the investors are never able to recover their investment value.

So, in order to avoid these risks, investors need to gather detailed information about the company, the stock promoter and the underwriter firm, before making any Pre IPO Investment.


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Last Updated on : 30th July 2013

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