Question 1

How can retail investors buy IPO shares?

Accepted Answer

Most IPO shares go to institutional investors, but retail investors can sometimes access IPOs through brokers like Fidelity, Charles Schwab, or Robinhood. You typically need to meet eligibility requirements and express interest before the IPO date. Many retail investors buy on the first trading day instead.

Question 2

Why do IPO stock prices often drop after the first day?

Accepted Answer

IPO prices often drop after initial excitement due to profit-taking, overvaluation, or lack of continued buying interest. The 'IPO pop' on day one is sometimes followed by a 'lockup expiration' sell-off when insiders can sell their shares 90-180 days later.

Question 3

What makes a company ready for an IPO?

Accepted Answer

Companies typically go public when they need growth capital, have strong financials, established business model, and meet SEC requirements. They usually have $100M+ annual revenue, clear growth path, and strong management team. Market conditions and investor appetite also affect timing.

Question 4

Are IPOs good investments?

Accepted Answer

IPOs can be risky investments. Studies show about 50% underperform the market in their first year. However, some become huge successes (Amazon, Apple). Consider the company's fundamentals, business model, competitive position, and valuation rather than just IPO hype.

Question 5

What's the difference between an IPO and a SPAC?

Accepted Answer

In an IPO, the company goes through traditional underwriting process with banks and SEC filings. SPACs are 'blank check' companies that raise money first, then find a target company to acquire and take public. SPACs can be faster but may have different risk profiles.

IPO

(Initial Public Offering)

Frequently Asked Questions