IP- Know: Unlocking IPOs
IPOs are starting to drop as often as the Jordan releases. What the heck are those you ask? IPO stands for: Initial Public Offering. Cute, right? When a company is formulated, it is owned by those who founded it, Accredited Investors/VCs and some times employees. While this can be empowering as heck, most companies need to scale to do well. Within this happening, they need more money.
The notion of “Scared Money Don’t Make Money” is said throughout your favorite trap lyrics, that theory proves true when it comes to the corporate world. With a good buck of IPOs, they have to move from being privately held to letting the homies get some via an IPO. They can either go public (IPO) or crowdfund for more coints. Depending on the state of the company determines which way they will go. If you have heard of the buzzword “Unicorn” that means when the company’s worth/value/valuation has hit at least a billie (billion).
But who holds the keys to a company going public? Big Brother SEC or Securities and Exchange Commission. If the SEC says no, the process gets shut down! Public shares allows said company to raise capital (coint) from public investors… You! The transition from a private to a public company can be an important time for private investors to fully realize gains from their investment. Plus - the company really grasps what the worth of their company truly is from underwriters while in the Pre-IPO stage. The reason for this is to run a full background check on the health of the company.
The Valuation that a company states that they are worth could be spot on or a bit speculative. Yet, Valuations can be done on assets or on liabilities. Depending on the climate that IPOs are pushed, you might find them a bit far fetch, which is why research is important. Yet, this helps determine the price of the shares that investors like you and I will purchase the stock for come IPO day. Also, the valuation is anchored upon company's future growth projections, industry and other factor. Case by case situation.
The Price - Per- Share (PPS) is usually determined during this stage and is shared with the public when it stock drops pon de market. Most analysts might provide a range, but that can go either way. On the other hand, if you had the opportunity to invest in said company during the private stage… you have options. Private shareholders could do either of the two tings: hold onto their shares in the public market or sell a portion or all of them for gains.
Commerical Break — need to get over the risk of the markets? Read this post.
And we’re back..
Do not feel the need to grab a stock for the full price. You can grab it for a Fractional Share or wait until it goes into an ETF. The reason why I say that is because there is a chance that this stock could drop not only during the day of the IPO, but also weeks to come. I talk about in this funny IG Reel. Historically, IPOs can drop 25% within 2 weeks after their debut, yet we have seen unicorns that have been blockbusters. My theory of Homework over Hype: meaning, doing the homework before buying the stock. Determining if it fits your strategy and stacks. Don’t let the hype blind you. While there are some risk with IPOs, there’s also risk with any form of investing. Research and determine how to lessen your risk.
What should you know about IPOs:
What the heck you are signing up for. This isn’t a situationship, this is a commitment. What you grab it for could be less or more at the end of close that day (or even a month from now). Investing is a long term ting, take your feelings out of the finance.
We are one. I know you might’ve sung that like you were listening to Frankie Beverly and nem on Tidal, but it’s true. You technically own piece of the company. Legit. You even get to vote on key things that go on with the company. Learn the company before snatching up tons of shares. Wax On, Wax Off.
Does it fit? Not that, your portfolio! Understanding your investment style and tolerance is key to investing. As you start to invest, you get an idea of the DNA of your portfolio. Do you invest more in high-risk tings or tried yet true? If you don’t know right off the bat, having a good mix would keep you focused yet flipping.
I rarely tell you guys what to buy, but I make suggestions on tings to look for before you snatch stocks, especially an IPO:
Their Pockets:
How are they spending the funds that they have? How much debt do they have? What did they make the last 3-5 years of business? The way they are spending what they currently have will determine how they will spend the additional capital from going public. Knowing their Financials is key. Another thing to check is their S-1. This is a form that they have to file with the SEC to go public. Here’s where they are hosted. If you see an “A” that means that the form has been amended, meaning some sort of change was made. This isn’t bad. Some of my favorite places to research them are Seeking Alpha and NASDAQ.
Their People:
Leadership + company operations are key indicators of potential of the company. Remember WeWork? Their fearless and fictitious CEO trashed the whole company and their IPO chances, which basically brought the company down like Mary J resulting in layoffs and being snatched by Softbank. They never went public and this also exposed the 1st trigger - their spending was trash!
Their Position:
Rather the company has a strong biz model or not, the way that they are performing in their market stands for how they will be seen in the future. A good example of this is Zoom conferencing. They did monster numbers during their IPO and trending pretty strong currently. The reason for this is due to how they are commanding their lane within the market. While this is dope to see now, they were setting the trends before going public. Think Amazon with this approach.
Their Pivot:
Industries are changing with the blink of an eye. From #FinTech to AI and more, businesses are coming now that fit into the future theory of which might be to come. How a company continues to trend up or fast follow should be something for you to check off when lurking IPOs. Take for instance, Pinterest. The company went from just being all about pasting picture, it created a strong search engine in the process.
No two IPOs are the same (take Lyft and Uber into consideration). But the thing is to know before you blow. Go back to the 4Rs of investing and study the companies you want to snatch during IPO or later. Also, take your feelings out of the funds; if you missed out on a dope IPO - you can still snatch later. Save up and stock, simple. If you can’t pay the full price - fraction stocks or Exchange-Traded Funds (ETF) are you pathway.
Want to know which apps are great to grab IPOs and other stocks? Check out this post!
Some IPOs I’ve covered: