Pre-IPO And IPO, Investments We Weren't Told About

Investing

Pre-IPO And IPO, Investments We Weren't Told About

7th July 2009

I have just returned from a trip to the south Pacific with a good friend of mine. He is very affluent and since he knows I have taken a keen interest in investments and the stock market, he asked me to tag along to an investment conference. Now when you are thinking of investing, most guys like my friend who have been investors for a long time, and have been successful in the stock markets, often say you should have a plan, that is will you invest in stocks, bonds, or will you be a property investor or even all of these. Well, friends I wanted to share with you today one lesson I learnt from the investment conference which I honestly didn't know about and I have a feeling most people don't either.

Investing It is the topic of IPOs or Initial Public Offerings. This is when a company lists on the stock exchange for the first time. Now usually the shares of a company in the IPO phase are usually quite cheap. Or so we thought. I'm sure most of you have heard of a company going public and offering an IPO to people like you and me. Now here is where things get really interesting and where I learnt something I didn't know.

Guys like Warren Buffet wouldn't take part in an IPO because this is actually the second phase if you will of the company going public. That's right, although it is an Initial Public Offering, for some people it isn't. Here is what I mean. You and I would consider the IPO the first offer to buy shares in the company usually at very cheap prices. However, before the IPO is announced there is a pre-IPO that is by invite only to an elite group of investors like Mr. Warren Buffet. Oh yes, these guys are exclusively invited to buy shares at an even cheaper price. These guys are considered the guys with the front money for the company. When I heard this I was pretty sad and angry but here is why you and I are not on that invite list.

The investors approached for a pre-IPO are mega rich guys like Warren Buffet who are legally allowed to make such investments according to the rules and regulations of the SEC (U.S. Securities and Exchange Commission). By the way, you and I are not allowed to make such investments by the SEC. That's right and this is because if these guys lose money in these types of ventures or business projects, they can actually afford to lose it and they can make it back in another project without their financial lives being ruined. These are the guys who actually stand to either lose the most or gain the most by entering into these types of business ventures. You could call this type of an investor a "venture capitalist". A venture capitalist is defined by the Wiktionary as An investor who invests in a startup venture; higher returns are expected because of the higher risks.

That's why I said this type of elite investor gives the front money for the company because they either lose big or win big whereas if you're like me, then we really can't afford to lose the type of money that these guys sometimes do without upsetting our entire financial future. So some of these guys would make their money back when you and I buy the shares from the IPO. Others stay on and get their money back as the company grows, gives returns and dividends and the share price goes higher on the stock market, or they simply sell their shares or interest in the company to an equally big investor.

So personally, I decided to give myself a time period of four years to be able to get onto the list of private investors who are invited to pre-IPOs. This is no easy task I can assure and I'm still trying to figure out a plan on just how I will get onto such a list. Wish me luck and if I succeed, you'll be the first to know!

"An investor without investment objectives is like a traveler without a destination. " - Ralph Seger

Comments (9):

Karen Says: No wonder the rich keep getting richer | 07.07.2009 |

Dominic Says: Interesting insight, I always knew that it couldn't just be that some investors bought shares and resold | 07.07.2009 |

Nancy Says: Unbelievable! | 07.07.2009 |

Steve Says: So the SEC makes rules that make it legal for some guys to be venture capitalists and others not, hmmm so the rich get richer and well you know the rest! | 07.07.2009 |

Ivan Says: Ouch. I'm with you Kev let's get onto that elite list and crash a party | 07.07.2009 |

Peter Says: Makes sense now I always wondered how some of these guys just make more and more and those of us who buy from the stock market usually get burned | 07.07.2009 |

Vivian Says: So the cheap price of the IPOs is in reality not so cheap if you consider the pre-IPO | 07.07.2009 |

Gene Says: I didn't know that for sure | 07.07.2009 |

Rachel Says: Wow....... | 07.07.2009 |

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Pre-IPO And IPO, Investments We Weren't Told About

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