Syracuse Business Daily

Question about Initial Public Offerings (IPO)?

when a person takes their company public through an IPO how do they make all the money they make? Some people make hundreds of millions of dollars just from IPOs, so how do they get this?

Public Comments

1. IPOs can be a risky investment. For the individual investor, it is tough to predict what the stock will do on its initial day of trading and in the near future because there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, which are subject to additional uncertainty regarding their future values.
2. Essentially the pre-IPO investors puts up for sale some of their shares for the IPO. Afterwards, there is a liquid market for the shares which, after the lock-out period, they can sell their shares for cash.
3. As an avid investor I feel confident to answer this one: First of all be very wary of IPO's. This is essentially when a company is going through the initial stages of being floated. Normally these companies don't go immediately onto the main Exhange but rather onto what is called Penny Shares, aka Pink Sheets, aka OTC (Over the Counter). Be aware, this is a hugely risky time for an investor. It can also be very profitable if the company in question has a great product etc. The company going through IPO uses the funds from the sold shares to carry out their intended plans in order to grow the business etc. I have lost money on IPO's as have many people. Most people lose, few people really make money. Do research on the company before investing anything. Understand their product, how much debt they have, who their competition is. One big but; don't forget we are in a recession and its not the best time to be risky.