Tech IPOs Shut Out the Little Guy

With the merger market slowing down, IPOs -- particularly those in the tech sector -- are on their way back. But, as usual, there's a catch: They're back with a twist, one that's unlikely to serve the interests of most individual investors.

More and more, when big-name tech companies file to go public, the fine print includes terms that are favorable only for insiders.

These terms are completely legal, but they often leave the majority of voting power in the hands of founders or a parent company; they allow deep-pocketed investors to buy a chunk of the company at the last minute at a steep discount; and they often shovel a disconcerting portion of IPO proceeds to key investors.

In some ways it started innocently enough back in 2004, when Google insisted on controlling voting power and warned investors that it may take actions not always in the interests of the company's bottom line.

Later, Vonage sold $250 million in convertible debt to founders and select investors immediately before filing for its IPO. Then Clearwire gave voting power to founder Craig McCaw and sold large pre-IPO stakes to Intel and Motorola at a significant discount.

Of course, Google's stock has soared, while Vonage's has tanked and Clearwire's has been mixed. So it's tough to make a case that these tactics have been either good or bad for stock returns.

But a larger issue is at stake here: the erosion of the influence of smaller shareholders, not to mention a growing indifference toward their interests.