Accessing and purchasing a stock at its initial public offering (IPO) can seem like a VIP invite to a party. In addition to the cache of being “in the know” about potential opportunities, IPOOwing to the excitement that can accompany news of an upcoming initial public stock offering (or IPO), many investors seek ways to learn more about these companies prior to the listing day. Fortunately, there are many resources and services that track upcoming IPOs.
Using these IPO trackers, it’s possible to learn more about the status of various public offerings.
For investors interested in buying IPO stock prior to its actual public offering day, that can be more complicated. If a company launches an IPO, it means that it’s only had private investors, such as angel investors, up to that point but it’s now ready to let other investors purchase shares.
When IPOs Are Offered to People Prior to Listing Day
When people talk about getting IPO stock at IPO prices, they may be talking about two things:
• The IPO offering price. This is a fixed price available to a limited group of people. This may include employees who were offered stock options as part of their compensation package, as well as certain investors who get access to the IPO fixed rate. This may be less than the share price set when the company goes public. All of these sales occur before trading day and can be tricky to navigate.
• The price of new IPO stocks once the company goes public. This is the price that is available to all investors and fluctuates based on market conditions.
Buying IPOs at their offer price can take some navigation, but that does not mean it’s impossible. Typically, offer prices may be offered only to certain brokerages.
One way that buying IPOs at offer prices differs from buying stocks already in the market: Only a certain number of shares are available to each brokerage, and they may be accessible to investors who have the highest account balances or meet other suitability requirements for trading IPO shares.
The trading process is also different: Instead of simply buying the shares, an eligible investor submits an indication of interest (IOI) letter. An investor’s ultimate buy order may be limited due to availability.
In part, this system evolved to protect investors who may be interested in IPO shares because of the headlines about fortunes made overnight. In reality, many investors have lost their fortunes when the IPO has not panned out.
💡 Quick Tip: IPO stocks can get a lot of media hype. But savvy investors know that where there’s buzz there can also be higher-than-warranted valuations. IPO shares might spike or plunge (or both), so investing in IPOs may not be suitable for investors with short time horizons.
How Do You Find Upcoming IPO Stocks Before Listing Day?
Investors who plan to wait until the unlisted stock debuts may find themselves frustrated that there is little prep time before the stock appears on the market.
The secrecy prior to an initial public offering reflects several factors: One is the registration process with the Securities and Exchange Commission (SEC). The company can not publicly sell or trade its stock until the SEC deems the registration statement effective.
Once the company has filed its registration, the company enters what’s known as a “quiet period” where it must adhere to restrictions on what and how much it communicates to the public.
Any “gun jumping” or public communication that nods or hints at an upcoming IPO may violate the Securities Act. But once a company registers with the SEC investors and stock market analysts will keep an eye out for the IPO.
Recommended: What Is the IPO Process? 7 Steps to Going Public
So, beyond combing through the SEC database, how can an investor find new companies going public? There are many resources:
Media outlets often report on upcoming and rumored IPOs. Reading through market news can be valuable for new and experienced investors alike, allowing them to have an enhanced perspective on how the market is evolving and which companies may be poised to IPO.
Exchanges, such as Nasdaq, also have trackers on upcoming IPOs, although these are IPOs likely to debut within the next several days.
Brokerages and financial institutions may also report on industry news and trends and may publish IPO tracking.
Vetting Upcoming IPOs
With a range of IPOs taking place in some years, qualified investors will need to vet any potential offering before they decide to add it to their portfolio. If you’re considering investing in a company as it goes public, you’ll want to comb through all of its public documents to see whether its financials look sustainable. Then, ask yourself the following questions:
• Do I understand the business and the potential investment risks?
• Is the IPO underwriter a well respected, major investment firm?
• How are other companies in this space performing?
• Do the financials justify the IPO price and company valuation?
Recommended: How to Value a Stock
The Pros and Cons of Investing in IPOs
Access to IPO investing can be exciting. It can make an investor feel like they’re investing in dynamic companies that may be shaping the way we live and work. But they can also be risky. Some companies that may get a lot of media attention may fail to live up to investor expectations. Other companies may hit bumps in the road as they adjust to being a public company facing investor scrutiny.
💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.
Pros of Investing in an IPO
• It can be exciting.
• There’s potential for significant profits.
• It can allow investors to put their money behind a company they may value, believe in, or otherwise want to be a part of in some small way.
Cons of Investing in an IPO
• While there’s potential for reward, there’s also risk potential that the IPO may flop.
• Market fluctuations may require active management and quick decisions when it comes to holding or selling.
• The volatility of investing in an IPO may require portfolio calibration so that other investments are less volatile.
While it may be possible to find upcoming IPO stock before listing day (more here), these shares are usually available only in certain circumstances to qualified investors. That’s partly owing to the careful regulation of the initial public offering process, but it also helps to protect eager investors from getting caught up in media hype and making a potentially risky investment on the spur of the moment.
Whether you’re curious about exploring IPOs, or interested in traditional stocks and exchange-traded funds (ETFs), you can get started by opening an account on the SoFi Invest® brokerage platform. On SoFi Invest, eligible SoFi members have the opportunity to trade IPO shares, and there are no account minimums for those with an Active Investing account. As with any investment, it's wise to consider your overall portfolio goals in order to assess whether IPO investing is right for you, given the risks of volatility and loss.
Photo credit: iStock/solidcolours
SoFi Invest refers to the two investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA(www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of SoFi Digital Assets, LLC, please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Bank, N.A.
Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. IPOs offered through SoFi Securities are not a recommendation and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation.
New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For SoFi’s allocation procedures please refer to IPO Allocation Procedures.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.