Browse past tech stock questions and answers in the Ask Matt archive . Buying into a company before it's public is what venture capitalists do. Many run out of money after finding out that their business models don't work. Sometimes they're killed by competition from larger companies. That's not to say you shouldn't consider investing in a pre-IPO company.
All venture capitalists say knowledgeable management the first thing they look for.
If the company is planning on selling socks over the Internet, find out how much they spend buying socks each year. Then find out how much consumers spent on socks over the Internet. If the market's small now, there's no reason to think this company will ever change that. Doing that math will give you an idea of how much a successful company in the field is worth. Make sure you pay a tiny fraction of that valuation because of the giant risks you're assuming.