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How to Crash Investors' Private Parties

BOSTON (TheStreet) -- Are you upset you didn't get in on the LinkedIn (LNKD) and Pandora (P) IPOs? Not just because you passed on their public offerings, but because you didn't have a horse in the race before they went public?

For the most part, private investing in pre-IPO companies has been an exclusive and expensive club, mostly limited to financial and venture capital firms or very wealthy individuals. Facebook, for example, announced earlier this year that it was offering up to $1.5 billion of securities to clients of Goldman Sachs (GS), provided they invested at least $2 million and pledged to hold the shares until 2013.

For the most part, private investing in pre-IPO companies has been an exclusive and expensive club.

Increasingly, however, smaller investors are looking for ways to hop the fence and join the party, especially given the hot prospects of several well-known, Web-based and social-media focused companies.

Doing so is easier said than done.

The whole reason these shares have been traditionally out of reach of the average investor is because they are deemed high risk and keep much of their financial information closely guarded, unlike publicly traded companies that have a legal requirement to open their books.

It is with the intent of protecting investors that the SEC has put rules and regulations in place limiting such securities to qualified institutions and people with a net worth of $1 million or more or with income of more than $200,000 in the current year and each of the preceding two years ($300,000 for couples). Pre-IPO shares cannot be advertised to the general public.

The simplest, though watered-down, way to get around this restriction and place bets on upstart companies is to find a mutual fund that invests in them. It may not be the same as personally wrangling Facebook shares, but you may gain diversity and downside protection in exchange for bragging rights.

For just a $2,500 minimum investment, Fidelity's Advisor New Insights funds have a smattering of private, Web and social-media related companies in the mix, among them Ning, Digg and, of course, Facebook.

Morgan Stanley (MS) has also added a dash of private company stock -- notably, once again, Facebook -- to its Focus Growth funds. Unlike other Morgan Stanley funds with such holdings that have a high buy-in basically limiting them to institutions and wealthy investors, a $1,000 minimum buy-in is enough to get you started.

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