But it's a red flag, Cripps warns, if a company's revenue is being eaten up by marketing — a continuing business expense that won't go away.

Competition Are there competitors offering similar services or is the company's business model easy for others to copy? Groupon, which recently announced it is going public, is often cited as an example of a business with many imitators — even on a local level. Baltimore-based Chewpons, for instance, launched late last year offering daily deals on restaurants.

"It's a tough, tough game to stay ahead," says Peter Ricchiuti, assistant dean of Tulane University's business school. "Every dorm room is a potential competitor for you."

Some social networking sites have grown so dominant — Twitter is an example — that it would be difficult for any copycat to catch up. Then again, there was a time when Yahoo and MySpace were the top dogs, only to be edged out by others.

Know the risks There are all sorts of business risks you likely aren't aware of, and the investment bankers touting the stock won't tell you, Straus says.

To find out the negatives, he says, read the prospectus. It's a dense document and hard to plow through, but necessary reading.

"Read the risk section. It goes through every conceivable risk," including information about the competition, Straus says.

Who's bailing? Check the prospectus to find out how the company plans to use the proceeds from the initial stock offering to the public, Cripps says. You want to see that the company will use the money for "general corporate purposes," meaning the cash will be plowed back into the business to help it grow, Cripps says.

It's a bad sign when all the insiders and venture capitalists want to cash out by selling off their entire holdings as soon as the stock goes public, Cripps says. What do they know about the stock's prospects that you don't?

"Ideally, as an investor, I want all the money to go to the future," Cripps says. He says he would be leery of an initial offering in which more than 25 percent of the proceeds is slated to go to insiders.

The No. 2 position The company is usually headed by the visionary who came up with the idea for the business in the first place. But Cripps says he looks at the person next in line, the chief financial officer, who provides all the numbers that investors must rely on.

The person at the financial helm should have a history with the company, and not be someone brought in temporarily from another business to get the deal done, Cripps says.

eileen.ambrose@baltsun.com

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