What is an IPO? Companies issue shares and raise funds from the public to expand the scale of their businesses, which is the development path of most well-run companies. Before going public, most companies are privately owned. If they want to enter the public market, they need to go through an IPO in the traditional process, that is, enter the public market through an initial public offering and start issuing shares to raise funds. What does an IPO mean to ordinary traders and what should they pay attention to? The company proposes listing intentions to several underwriters. After studying the company's operations, the underwriters put forward valuations and suggestions, discuss the best type of securities that can be issued, the issuance price and the number of shares to be issued, as well as the expected time frame of market issuance, etc., and also include the services and related quotations they will provide throughout the process. At present, the major domestic IPO underwriters in the United States include: JPMorgan Chase, Goldman Sachs, Credit Suisse, etc. Based on the data provided by the underwriter, the company finally selects an underwriter, formally agrees to the underwriting terms through the underwriting agreement, and begins the IPO process; Form an IPO team. The main members are composed of underwriters, lawyers, certified public accountants, and experts from the Securities and Exchange Commission. The team's work mainly includes conducting a large number of thorough and rigorous due diligence investigations to assess the company's maturity relative to the overall market, including: details of the IPO candidate's tax, legal, financial, commercial, operational, IT, human resources situations, etc., an in-depth understanding of the sustainability of the candidate company's business model and its competitive advantages and disadvantages, an in-depth study of the development opportunities in the candidate's industry, and a comprehensive assessment of potential risks that may affect the company's development, etc. Prepare IPO application documents, apply to register the IPO with the US Securities and Exchange Commission (SEC), and decide on which exchange to list. The most important filing document is the S-1 registration statement, which consists of two parts: the prospectus and the filing information for privately held shares. The content includes the company's current status, advantages, possible difficulties and effective response strategies. It also needs to provide detailed information on how the company plans to allocate shares to investors, and how the company plans to use the funds raised after listing. The prospectus will be continuously revised during the application period to comply with the committee's requirements and obtain full approval. This prospectus is also an important document that investors must read when considering investment after listing. Prepare marketing materials. This material has been produced for the pre-marketing of new equity offerings. Underwriters and company executives discuss marketing stock offerings together to estimate market demand and determine the final offering price. Underwriters can modify the financial analysis throughout the marketing process, including changing the appropriate IPO price or offering date. The company, in turn, takes the necessary steps to meet certain public stock offering requirements and must also comply with stock exchange listing requirements and SEC requirements for public companies. The company forms a board of directors. The Company establishes a process for reporting auditable financial and accounting information on a quarterly basis. A company issues its shares on an IPO date. The initial issuance of capital to shareholders is received in cash and recorded as shareholders' equity on the balance sheet. On the day of the IPO, funds from large investors will be transferred to the company's bank account, which is the only benefit the company gets from the IPO. The company then began selling shares in the secondary market, and large investors could also issue their shares after the lock-up period. All transactions that occur on the stock market after an IPO are between investors, and the value of the company will change as the stock price rises and falls. Why do companies need to IPO? Before a company IPO, the company is considered a private company. As a private company, investment sources mainly come from founders, family, friends, angel investments, or venture capital, etc., with a limited amount. When the company grows to a certain stage, these limited investments will limit the company's continued growth. At the same time, when the company itself has met the strict requirements of SEC supervision and has the ability to assume responsibility for the interests of public shareholders, it will consider listing as a public company.
IPO is an important step in the growth process of a company, which will bring a large amount of funds to the company and gain greater development and expansion capabilities. The transparency and trustworthiness of a company's operations once it enters the public markets can also be an important factor in obtaining more favorable terms when it raises additional borrowed capital. At the same time, because original shareholders of private companies sell their own shares to the public, IPO can be regarded as an exit strategy for company founders and early investors (such as angel investors and venture capital), realizing all profits from their private investments. Private companies will involve both the primary market and the secondary market in their IPOs. In the primary market, private companies provide some of the shares expected to be sold to underwriters. The underwriters sell the shares to their customers at the IPO issue price before the shares are traded on public exchanges. These customers are mainly buyers with strong financial strength, such as large institutions. There is often a significant difference between the IPO issue price and its post-listing trading price, which brings considerable returns to buyers in the primary market. After the IPO, the private company sells the remaining issued shares to the secondary market. Buyers in the primary market can also sell their shares to the secondary market, but there is usually a lock-up period to prevent buyers in the primary market from selling in large quantities and causing the stock price to fall. At this time, most investors, including ordinary buyers, can place orders through their brokers to buy the stock at the opening price. Under normal circumstances, the stock price of new shares will fluctuate violently after they enter the market, so the purchase price in the secondary market is often higher than the issuance price in the primary market. For example, if a company's proposed issuance price is $10, buyers in the primary market can buy at the issue price of $10 per share. Once it enters the secondary market, the price may rise immediately, and buyers in the secondary market need to pay more, which is the opening price, to purchase the stock. Of course, ordinary buyers can also obtain the qualification to purchase a new stock at the issue price through ETFs or mutual funds. How to apply for an IPO? It is difficult for ordinary investors to enter the primary market and purchase issued stocks at the issue price. They usually purchase them through brokers in the secondary market, such as Webull and Tiger Brokers. 1. Webull Webull Securities When you search for IPO on the Webull homepage, you will be redirected to the IPO market page, which provides four forms, including companies to issue IPOs, companies that publish IPO documents, the company's earnings information, and the company's dividend per share information. The IPO page to be issued provides company code, company name, estimated issuance price, shares for sale, quantity, date and other information. The form for publishing IPO documents contains the company code, company name, rough issuance quantity and document disclosure date. The earnings information form displays earnings currently on the market, company code and name, issue date, estimated earnings per share and last price. After entering different companies, you will see specific market information and analysis of the company. The expression of dividend per share information is to publish the dividend information per share of different companies, including company code and name, current dividend per share, yield and ex-dividend date. The ex-dividend date refers to the next trading day after the equity registration date. Shareholders who purchase the company's shares on or after this day will no longer be entitled to the company's dividend allotment. Further reading: How about Webull, Webull Securities account opening rewards and steps 2. TradeUp (Tiger) TradeUP TradeUp is a mobile trading APP provided by Marsco Investment Corporation with brokerage services and provides free streaming market data in real time. Leveraging innovative technology, clients can trade a wide range of securities, including IPOs, seamlessly and at low cost. The user interface is clearly laid out, so even first-time traders can quickly find the target module, obtain the required data and perform trading operations. At the same time, it also provides a large number of professional analysis reports and real-time data analysis charts, filters, fan charts and other data to meet the in-depth market analysis needs of experienced investors. Further reading: How about Tiger Brokers, Tiger Brokers deposit rewards, account opening steps What is the difference between an IPO and a direct listing? Private companies enter the stock exchange and convert into public companies, either through an IPO or directly listing, bypassing underwriters. The difference between the two is: Type of shares offered
An IPO sells new shares after restructuring of the original company's shares, while a direct listing sells existing shares held by company employees and investors. Issue price The issue price of stocks sold in an IPO will increase due to the presence of underwriters. In contrast, the stocks of directly listed companies are relatively cheaper. Purpose of offering shares The purpose of an IPO is to raise additional funds, while a direct listing is to increase shareholder liquidity. Stock trading liquidity In an IPO, there may be a lock-up period for shareholders in the primary market and they are not allowed to sell their stocks, while all shareholders of a directly listed company can trade their stocks at any time. Applicable company types IPO is more suitable for companies that need to raise new funds to expand their scale; direct listing is more suitable for companies with sufficient funds but lack of exposure and visibility. What is a Pre-IPO? Pre-IPO is an investment by investment institutions in companies that have the intention to go public and have met the listing conditions before they make an IPO. Such companies usually reserve a small amount of stock for purchase and sell it privately to a group of investors, such as hedge funds, private equity companies, investment banks, etc., at a price well below the IPO issue price. These stocks can be put on the market for trading after the IPO and will receive high returns. But at the same time, there will also be certain risks, such as the company's failure to successfully IPO and go public. Is Pre-IPO worth investing in? For companies preparing to go public, Pre-IPO is a way to raise funds and to a certain extent avoid the risk that the IPO will not be successful as scheduled. The funds paid by investors ensure that the company has sufficient funds before the IPO, which in turn increases the possibility of the company's successful listing. For investors, conducting a Pre-IPO has both risks and rewards. investment risk The risk is that if the invested company fails to pass SEC review and cannot be listed as scheduled, the return on this investment will be limited to a small internal rate of return within the company. And if the company they invest in successfully goes public, investors are often restricted by a "lock-up period" and cannot immediately sell their shares to make a profit. return on investment In terms of returns, once Pre-IPO investment is successful, the returns that can be obtained are often considerable. Because usually for Pre-IPO investment, the target company has relatively strong strength and will be popular immediately after listing. The stock price will often rise rapidly, ending the lock-up period, and the profits obtained from selling the stocks bought at low prices are enough to make many institutions believe that Pre-IPO is worth investing. For example, the price of Alibaba stock on the first day of trading has exceeded the issue price by 36.3%. Therefore, for experienced investors, if they have sufficient company information and understand the company's strength before conducting a Pre-IPO, the possibility of profit is often much higher than the possibility of failure. What is the difference between IPO and Pre-IPO? Object: Pre-IPO is investment in private companies, while IPO is investment in companies that have been or are qualified to be listed. Price: The purchase price of Pre-IPO will be lower than the purchase price of IPO, and the return potential is higher than that of IPO. Guarantee: Pre-IPO targets do not need to provide a prospectus, the company's operations and financial information are not fully transparently disclosed, and are not subject to SEC supervision. An IPO must issue a prospectus approved by the SEC, describe the company's situation in detail and accurately, and be supervised by the SEC. FAQ