7 Tips And 7 Risks For IPOs: Part Two of An Investing Series

Seven tips for investors on whether to buy at IPO price or in the aftermarket:

Read and analyze

1. Read and analyze the company’s S-1 registration once it is filed. Be aware that this document may be amended several times before the final IPO pricing with potentially material information.

Understanding

2. Get an understanding of the company, its markets, its near-to-intermediate term plans for market and product expansion.

Experience

3. What is company management experience, their compensation,  their share ownership of the company before and after the expected IPO. How deep is their bench as they grow more significantly.

Lockup provisions

4. Lockup provisions of existing shareowners and timing of their expiration must be disclosed to potential investors.

Capital raising

The current plans for the capital raising associated with the IPO but what about future expansion plans and follow-on offerings which may dilute these shareowners.

Does the share structure reflect a dual ownership

6. Does the share structure reflect a dual ownership where the company’s founder/management retain super voting power of the company at the expense of the new shareowners? This has become more common but there are some institutional investors who have policies against buying  this structure.

Investors must always do their own research, consult your financial professional and exercise some level of caution based on your risk levels.

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