The issuer's early stage of development and high risk make them a venture capital investment. Yet, no venture capital firm considers investing at the valuations charged the public. Prospectuses do not disclose an issuer's valuation . As a result, it is difficult for public investors to evaluate the attractiveness of the deal. On the other hand, sophisticated investors always consider the valuation to distinguish between a fair price and a high price on a good company.
Sophisticated investors know how to calculate and evaluate valuations on their own.
Current share allocation practices encourage average investors to bid up prices in early trading to extraordinary levels. When a VC invests in a risky company, he gets important investor protections such as board representation, voting prerogatives, liquidation preferences and superior assurances of a minimum return. Public investors who invest in such companies almost never obtain such protections . FairShare believes that IPOs are routinely priced higher than they would be in an informed and competitive market . We believe conventional deal structure and share distribution practices take advantage of small investors' lack of access to and knowledge of deals, and occasionally take advantage of their wherewithal and willingness to take a risk on an emerging company.