5 Strategies to Invest in IPO

First of all, let us know what is IPO. IPO is the very first sale of stock that is issued by a private company to the public. IPO is the abbreviation for Initial Public Offering.

There are many of us who intend to earn money by investing in stocks. Then there are few of us who intend to invest in an IPO or say initial public offering. It is not an easy task to earn profits by investing in IPO. You have to keep in mind that no investment comes without risk, but with some proper planning and strategies, you can assure some good returns on your investments. But now that you have decided to invest in IPO remember below-listed strategies for you regarding IPO investments.

  1. First of all, select a company with strong brokers. As an investor, you need to understand that strong brokers will always help you by bringing quality companies into the public. Companies with smaller brokerage must be avoided. However, there is an advantage for smaller brokerage companies; it is that they have a smaller client base and this makes it easy for you as an individual investor to invest in the pre-IPO. Do your own research about the firm before you invest with them.

  1. You must check the performance of the company. It is important that you check a company’s year after year performance for IPO investment. Even if the company’s revenue is growing with a 20 % growth annually, then this indicates that the firm is growing quite well. If the growth annual percentage is lower than this, the company can be said to be underperforming.

  1. One of the most important points is to check for the background of the promoters. Before making an investment, it is necessary to check on the background of the promoters of the company and what kind and how much experience do they have should also be considered while checking their background. Check if there are any defaults in the payments from any banks as it would have surely been impacted by the performance of promoters.

  1. Reading the prospectus is the second most important thing. You should carefully go through it, never skip checking the prospectus of the company you are planning to invest with. Do not put all your faith in it but do read it very carefully and with a good presence of mind. Reading the prospectus will give you the insights into the risks and opportunities associated with the firm. You will get to know how the money will be raised by the company and how IPOs will be used. If the company will be using the funds for repaying their loans or buying equity, then this is not a good sign, this will be mentioned in the prospectus, and you should not miss on things like these.

  1. Waiting for the lock-in period can be about 3 months to 2 years. Stockbrokers and underwriters won’t be able to sell their shares during this lock-in period. Only if the company is going strong and is certain about gaining on their investments, the underwriters and stock brokers will hold onto their shares.

Post Author: Ethen Daniel