How to Invest in IPOs

Topics Covered

What is an IPO?

Why Invest in IPOs?

The IPO Process

How to Get Access to IPOs

Vocabulary Reference

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Investor / Individual Investor:

An individual with intentions of investing in public offerings.
Also referred to as “Retail Investor”.
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Issuer:

The company that is issuing shares of stock to the public.
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Underwriter:

An investment bank that works with the Issuer to take it public.
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Prospectus:

A legal document that provides details about a company (the Issuer) and its offering that is required by and filed with the Securities and Exchange Commission.

What is an IPO?

An Initial Public Offering (IPO) is the first time that the stock of a private company is offered to the public. Known as “going public”.

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IPOs often involve smaller, younger companies seeking capital to expand, but they can also be consummated by large companies looking to become publicly traded.

Why invest in IPOs?

All investors have different strategies and we do not make any investment recommendations.

 

However, an IPO is an opportunity to make a ground floor investment at the IPO price which is attractive to investors if they like the long term prospects of the company and think the share price will rise.*

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Why invest in IPOs?

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In an IPO, the investor only pays the offering price. No additional commissions are paid by the investor.

 

This share price structure provides the investor with the opportunity to avoid paying additional commissions if shares are purchased in the aftermarket*

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The IPO Process

A company typically decides to use an IPO as a way to generate the capital needed to expand. There can be other reasons, but raising capital to expand operations and grow as a company is very common.

 

The Issuer (the company) seeks an Investment Bank (Underwriter) to evaluate the pros and cons of going public and to help structure the offering.

The IPO Process

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When a company initiates the IPO process, the chosen Underwriters facilitate a specific set of events.

An external IPO team is formed, consisting of an Underwriter, Lawyers, and auditors.

Disclosure information regarding the company is compiled, including financial performance. This becomes part of the company prospectus, which is circulated for review.

The audited financial statements are included in the prospectus.

The company files its prospectus with the SEC. Once SEC comments are cleared, a date is set for the offering.

How to Get Access to IPOs

To purchase IPOs, an investor starts by placing an indication of interest.

Here is a brief outline of the process of purchasing an IPO,
below each step is the common objective of the investor during that stage.

1

Price range is set

The Issuer decides on the total number of shares that it will issue in the offering and sets a price range per share.

When the investor would want to be aware of the offering

2

Orders are placed

Potential investors research the Issuer’s prospectus before placing a conditional offer to buy.

When the investor would want to place an order

3

Shares allocated

The day the offering becomes effective, investors are allocated shares. They may receive some, all, or none.*

When the investor would receive an allocation

*There is no guarantee of an allocation in any offering

How to Get Access to IPOs

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Accessing IPOs may be available from your Broker-Dealer (if they are given an allocation) or directly through the Issuer. However, most investors have had little to no success accessing IPOs over the years.

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With advances in technology and financial regulations, some online brokerages and other platforms, like ClickIPO, are creating new and exciting ways to browse and participate in upcoming offerings.

The IPO Marketplace

Download the ClickIPO app to get started…

 

Securities are offered through Click IPO Securities, member FINRA/SIPC. This material does not constitute an offer to sell nor the solicitation of an offer to buy any security. This can be done only by prospectus. IPOs involve specific risks. Please read our IPO Risk Disclosure Statement.