I talked to a friend just before Christmas whose firm made a good portion of their returns on the insight that VC firms, IPO participants and the market in general all have gaps in how they evaluate the worth of a company and the fact that this gap has grown significantly in the past 5 years.

Previously, companies went public much sooner and you could expect a match, not an exact one, but in the same ball park, between the VC valuation and wall street valuations. This helped lead to rising share prices after the IPO.

Now with longer gestation periods leading to more fund raises, the VC's get paid, but its the IPO participants and the employee's who get screwed. Once a company is public its GAAP that matters and GAAP analysis usually assigns a revenue multiple to a company that is based on its sector and assumed growth. This multiple is almost always much smaller than what the company's publicly stated valuation.

This leads to a bunch of broken IPO's as companies stretch to IPO at a certain price to meet mezzanine level funding requirements. If you can get borrow, almost certainly dependent on how much you pay on commissions to brokers, then atleast up until this year you could have made decent money shorting most tech IPO's, most other industries don't yet suffer from a phobia of becoming public.