IPO Basics: Conclusion

Let's review the basics of an IPO from this tutorial:

• An initial public offering (IPO) is the first sale of stock issued by a company to the public.
• Broadly speaking, companies are either private or public. Going public means a company is switching from private ownership to public ownership, where public shareholders get the right to vote in company decisions.
• Private companies typically have a small number of closely knit shareholders.
• Public companies can have thousands of different shareholders.
• Going public raises cash and provides many benefits for a company.
• Getting in on a hot IPO is very difficult, if not impossible.
• The process of underwriting involves raising money from investors by issuing new securities to institutional investors.
• Companies hire a syndicate of investment banks to underwrite an IPO.
• The road to an IPO consists mainly of putting together the formal documents for the Securities and Exchange Commission (SEC) and selling the issue to institutional clients.
• The only way for you to get shares in an IPO is to have a frequently traded account with one of the investment banks in the underwriting syndicate.
• An IPO company is difficult to analyze in the market because there isn't a lot of historical info.
• Lock-up periods prevent insiders from selling their shares for a certain period of time. The end of the lockup period can put strong downward pressure on a stock.
• Flipping may get you blacklisted from future offerings.
• Road shows and red herrings are marketing events meant to get as much attention as possible. Don't get sucked in by the hype.
• A tracking stock is created when a company spins off one of its divisions into a separate entity through an IPO.
• Don't consider tracking stocks to be the same as a normal IPO, as you are essentially a second-class shareholder.