When it comes to investments, people are often inclined to look into already established companies with a long track record of booming success. For example, names such as Amazon, McDonalds, and Google are considered good investment options due to their long-standing reputations.
However, for many, IPOs present a tremendous financial opportunity that has the potential to out-compete most other types of investment in terms of returns.
What Exactly Is An IPO?
An IPO, or initial public offering, is when a company decides to sell off shares of itself to public investors, meaning that anyone can essentially purchase a piece of the company if they so wish. IPOs are generally necessary for business stocks to be sold on stock exchanges and many indications of a company’s long-term health are the result of IPO success.
Companies technically get to set the conditions of their IPOs, including stock type, the number of stocks, and stock price. However, it’s almost always the case that IPOs are primarily handled by investment banks who act as respected intermediaries and professionals who can make the process go much more smoothly.
Why Are IPOs So Popular?
From a company’s point of view, IPOs are a fantastic way to encourage business growth and expand rapidly. For example, when an IPO occurs, the amount of money a business has on hand increases monumentally, allowing any projects to be placed on hold due to a lack of funding to resume, allowing a business to expand into new markets and ramp up productivity.
IPOs are also an excellent way to develop a better reputation with the public. For example, when a company first offers stock options, it can be an incredible boost to public perception. Purely private organizations tend to be secluded by default or have a lot of information about their operations hidden from the public. The natural level of disclosure that accompanies IPOs means that people get a better view of a company’s ethics, business plan, and operation specifics.
Additionally, IPOs allow business leaders to throw off the debt they’ve accumulated through business growth as they now have access to stock worth a considerable amount of money.
From an investor’s point of view, IPOs present a unique opportunity to obtain assets that can potentially explode in value. For example, IPOs tend to occur only after a relatively successful business. With the additional money raised from public stock, the increased growth potential can easily make a company surge in value. While IPOs have traditionally been optioned realistically available only to seasoned financiers, more casual investors can use online investing platforms, such as SoFi Invest, to make an IPO investment.
Should You Invest In An IPO?
When it comes to investing, you always have a wide variety of options, with stocks being an obvious choice. Which stocks you choose are up to you, but it’s best not to underestimate the potential value of an IPO.