If you make the cut at Offroad, you are given a password and alerted by e-mail about the times of presentations; an offering memorandum is posted on the site. During the two or three weeks the deal is available, you can e-mail questions to companies and then invest with a click of the mouse.
What's the difference between a "private" offering and a "public" one? Anyone can buy into a public company; its prospectus and financial statements are on public view at the Securities & Exchange Commission. Underwriters can't bury the results of bad public offerings; results are there for all the world to see.

Supposedly the private deals get you in on the ground floor, where the risks are greater but the potential payoff is greater, too. Still, there is no clear demarcation here. Some public offerings are in flaky, untried concepts, and some private offerings involve established firms. Indeed, says Pelletier, Offroad Capital intends to present only companies that have revenues and customers. "We're not talking three guys with ten slides," he says.

In private deals, you just have to pray the company gets bought or goes public.

Here's another important difference between public and private deals:
The public ones are more liquid. Anytime you want to sell shares you bought in a public offering, even an hour later, you can call up your broker and sell. Shares bought privately can be sold only to another eligible investor. In practice, you just have to pray that the company gets bought out or the firm follows up with a public offering--in which case you have an option to exercise warrants to purchase shares at a strike price. But remember, you can't sell those shares until the "lock-up" period expires, six months or more after trading begins. Be aware that only 1 in 30 venture-backed companies ever goes public.

What about results? We can tell you something about public offerings, since our statistics department tracks them. The gist of what we have found: During the 1990s bull market the average new issue has outperformed the market, measured from its offering price, but has underperformed if you measure from the closing price on the first trading day. Of the 380 companies that have gone public so far this year, reports Commscan, a Manhattan-based investment banking research firm, 140 are trading below their offering price and 224 below their first-day close.

It's hard to say anything definitive about the performance of private venture capital precisely because it is private. Who knows what sour deals are being swept under the rug?
Pelletier, 46, spent six months at the well-known venture capital firm Benchmark Capital in Menlo Park, Calif. Demand for venture investments far outstripped supply, he says: "VCs take money from institutional investors and occasionally let their friends in on the deal. If you're a wealthy businessman in Chattanooga, your chances of getting into a venture capital fund are almost zero."
Now you can get in--but no thanks to Benchmark, which decided not to provide venture capital to get Offroad off the ground. Says Benchmark partner Andrew Rachleff: "The reason we did not back Stephen is because we only back companies that have the potential of doing $100 million in revenues in three to four years. You do the math."

Rachleff has a point. Pelletier wants to sponsor companies looking to raise $3 million to $15 million, taking a 6% or so cut of the money raised. To reach $100 million in revenues, he'd have to do an improbable $1.7 billion worth of deals a year. So far, he has landed $17 million from wealthy individuals for launching Offroad.

Assuming you qualify for a private equity deal, should you grab it? Bask, if you want, in the glow of being in a select crowd that includes only 5.7 million other U.S. households. But our advice: Put your money somewhere else.

Source: Mary Beth Grover