{"id":22783,"date":"2019-05-13T15:12:28","date_gmt":"2019-05-13T12:12:28","guid":{"rendered":"https:\/\/www.bondora.com\/blog\/?p=22783"},"modified":"2019-05-13T15:12:28","modified_gmt":"2019-05-13T12:12:28","slug":"investing-in-ipos","status":"publish","type":"post","link":"https:\/\/goandgrow.eu\/en\/blog\/investing-in-ipos\/","title":{"rendered":"Investing in IPOs: The Golden Egg or the Bubble Waiting to Pop?"},"content":{"rendered":"\n

They say the earlier you get into an investment<\/a>, the better your returns will be. This is the allure of the IPO: investing in a burgeoning company as early as possible to capture exponential gains. Too bad not all IPOs perform well. In fact, these investments might be riskier than investors realize. So, are IPOs the sound investment everyone thinks? Or are they simply risky investments dressed up for investors to fight over?<\/p>\n\n\n\n

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IPOs Explained<\/h2>\n\n\n\n

When a company begins to grow it has a few options for accessing the capital it needs to continue its business operations. One way to do this might be to issue corporate bonds, using debt to gain access to capital immediately, and paying borrowers back with interest payments. However, another way to access funds would be to break the company down into shares of stock and sell off a portion of those shares to investors.<\/p>\n\n\n\n

This method is known as an initial public offering (IPO). In an IPO, investors who purchase shares of the newly created stock own a proportional amount of equity in that stock\u2019s underlying company. If you purchase 1 share of Amazon stock, you own 1 share worth of Amazon the company (which, as you might have guessed, is miniscule). By selling equity in the company, capital can be raised to grow the underlying business even further.<\/p>\n\n\n\n

IPOs are also a great way to provide returns to early investors like venture capitalists and angel investors. When a company issues shares via an IPO, these early investors receive shares equivalent to their early investment in the company, which they can then sell on the open market once the company goes public.<\/p>\n\n\n\n

Catch on the Train<\/h2>\n\n\n\n

For investors who can get in on the ground floor of an IPO, it can mean huge returns. That\u2019s because at the time a company is issuing its IPO has garnered significant attention for their growth and profitability over time.<\/p>\n\n\n\n

Streaming television company Roku went for its IPO in 2017, listing at $14 per share. Two years later and the stock price has skyrocketed north of $65<\/a> (at the time of publishing) and shows no signs of slowing down. Twitter came out at an IPO price of $26, and although the company has had its fair share of ups and downs, it currently trades above $40 per share<\/a> (at the time of publishing). Facebook is another social media IPO success story, with shares offered at $38 now worth almost $200<\/a> (at the time of publishing).<\/p>\n\n\n\n

Needless to say, there are a slew of IPO success stories that have kept investors coming back. But, with every successful IPO, there are many which end up faltering along the way, producing significant losses for investors.<\/p>\n\n\n\n

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Don\u2019t Always Buy into the Hype<\/h2>\n\n\n\n

While IPOs are often a great investment, they also can bring significant hype, which leads to mispriced offerings. Big-name companies have seen their stocks falter immediately following an IPO which was later deemed to be overpriced by the company and its underwriters.<\/p>\n\n\n\n

There have been some\nhistorically bad IPOs which have lost investors millions of dollars. Many of\nthese historic misses came from overhyped tech companies which were believed to\nhave higher valuations than their underlying businesses.<\/p>\n\n\n\n