1. Check the details of the company and the offering
When you buy pre IPO share, ascertain the legality of the company that you have selected. Any company that is registered or that have been exempted is most likely legal. If the company is neither registered nor exempt, you should most assuredly avoid it. It is always a good precautionary measure to check the details of the company from the state securities regulators. You must also find the regulation under which the pre IPO shares are being offered.
2. No guarantee of returns
A number of people buy pre IPO shares by believing the unrealistically high predictions of fraudsters. To avoid falling into such traps, the individual must be realistic in his/her expectation. The price of the pre IPO shares are determined by a number of different factors and hence fluctuations must be expected. There have been many cases where the final listed share turned out such that investors got no substantial returns.
3. Pre IPO shares can be highly profitable
The companies whose business has been accepted widely in the market have higher chances of getting highly evaluated in the market. If you buy pre IPO shares of such a company, you are very likely to earn a huge sum of money in a short period of time. This is the aspect that pulls a large number of people to pre IPO shares. Under a proper advice and with sufficient knowledge, it is really easy to get great returns.
4. Do an objective research
The company that has not yet gone public is away from the strict scrutiny of the market and relatively fewer information is available regarding its operations. The only source of information available to the market is the prospects issued by the company, which of course cannot be considered to be an objective source of information. In such an environment of lack of information, the uncertainty regarding the investment decision remains high. To reduce this uncertainty, you can take various steps, such as, contact the market expert, share advisor, or at the least, search the internet.
5. Wait until the lock-up period is over
A lock-up period is a legally binding contract that can last from few months to few years. During this periods, all the underwriters and the insiders of the company are not allowed to sell their stocks. By following this strategy, you get the chance to see the activity of the forbidden entities once the lock-up period is over. If they sell their share, the future of the company is likely doomed and you should follow their lead. Of course, on the other hand, if they stick with their shares, you must do the same as their price will most likely increase in the future.