How Does the IPO Process Work?
A company hires investment banks as underwriters to set the offering price, file regulatory paperwork with the SEC, and market the IPO through a "roadshow." On listing day, shares begin trading on an exchange like the NYSE or Nasdaq. The opening price often differs from the offering price based on supply and demand.
Should Individual Investors Buy IPOs?
IPOs generate excitement, but they carry elevated risk. Shares can be volatile in the first weeks or months. Institutional investors often get preferential pricing, leaving retail buyers to purchase at inflated early-trading prices. Research suggests many IPOs underperform the broader market within their first year.
What Happens After an IPO?
After going public, the company must comply with SEC reporting requirements, including quarterly earnings and annual filings. Early investors and employees face a lock-up period (usually 90–180 days) before they can sell shares, which can cause a price drop when the lock-up expires.
Frequently asked questions
How can I invest in an IPO?
Most brokerages now offer IPO access to retail investors, though allocations are limited. You typically need to express interest before the listing date. Be aware that demand often exceeds supply, and you may receive fewer shares than requested.
What is an IPO lock-up period?
A lock-up period is a contractual restriction preventing insiders and early investors from selling shares for a set time after the IPO, usually 90 to 180 days. When the lock-up expires, a flood of new shares can temporarily depress the stock price.