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An IPO subscription status describes the position of a company’s initial public offering (or IPO), as it relates to how many committed investors it has prior to the actual IPO.
For example, an IPO may be “fully subscribed,” “undersubscribed,” or “oversubscribed.”
Many investors are intrigued by IPOs, because it’s an opportunity to put money into a relatively early-stage company that has room to grow over time. Some companies draw more investor interest than others, and the IPO’s subscription status is one way to gauge that, because investors sign up with the intent to purchase a certain number of shares.
A company’s IPO subscription status doesn’t guarantee that the stock will perform one way or another. It’s just a preliminary indicator that may help interested investors navigate a potentially risky investment move.
Key Points
• An IPO subscription status describes the position of a company’s initial public offering (IPO) with respect to how many committed investors it has before the actual IPO.
• An IPO is when a company offers shares for sale to members of the general public for the first time through a stock exchange.
• Knowing an IPO’s subscription status can give investors an indication of how much demand there is for shares, and how an IPO stock may perform once it hits the exchanges.
• Typically, only certain investors can participate in IPO bidding and subscribe to an IPO.
• Individual investors may not have access to IPO subscriptions, but research can help them find the right companies to invest in as they go public.
IPO Review
“IPO” is an acronym that stands for “initial public offering.” It represents the first time that a company offers shares for sale to members of the general public through a stock exchange. Prior to an IPO, you would not be able to find a company’s stock trading on an exchange such as the New York Stock Exchange, for example.
Prior to going through the IPO process, a company is private, and its investors usually include its founders, employees, and venture capitalists. A private company usually decides to go public to attract additional investment.
But it’s the tricky period before an IPO, when a company is still private, that many prospective eligible investors look to make a move and get in early. This is when investors “subscribe” to an IPO, which means they’re agreeing or signaling their intent to buy a company’s stock prior to its IPO.
When the IPO executes, those investors may be able to purchase the number of shares to which they previously agreed. Typically, only certain investors can participate in IPO bidding and subscribe to an IPO.
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IPO Subscription Status Defined
A company’s IPO subscription status is a gauge of demand for an IPO. It refers to how many investors have subscribed, or signaled their intention to buy shares in the company. The goal of an IPO is for a company to sell all of its shares — or, to reach an IPO subscription status of fully subscribed, and a valuation in line with its calculations for pricing its IPO.
In that event, all of a company’s shares are spoken for prior to hitting the exchanges, and any leftover shares won’t see their values reduced in order to attract buyers. Early investors looking to cash out after an IPO typically must wait for the lock-up period to expire before they can sell their shares.
Keep in mind that many IPO stocks in the U.S. are bought by large, institutional investors involved with the IPO’s underwriter, an investment bank that helps a company prepare for an IPO and purchases shares in the company and resells them. But although the average retail investor is not typically included in an IPO roadshow, they may still be able to buy an IPO stock at its offering price.
Some brokerages have programs that allow qualified investors to request IPO stocks at their offering price, but there’s no guarantee those investors will actually get the shares.
Recommended: What Is IPO Due Diligence?
Why IPO Subscription Status Matters
An IPO’s subscription status matters in that it can give investors a sense of how an IPO stock may perform once it hits the exchanges.
Shows Demand of IPO Shares
Knowing an IPO’s subscription status can give investors an inkling as to how much demand there is for shares — if demand is high (meaning an IPO is fully or oversubscribed), it’s a signal that an IPO stock may gain value after its market debut. But it’s not a guarantee.
Conversely, an undersubscribed IPO sends a signal that investors aren’t that interested. And when stocks do hit the exchanges, they may see a price reduction soon thereafter.
💡 Quick Tip: Access to IPO shares before they trade on public exchanges has usually been available only to large institutional investors. That’s changing now, and some brokerages offer pre-listing IPO investing to qualified investors.
The Takeaway
While individual investors may not have access to IPO subscriptions, they can still participate in the IPO market. The key is doing thorough research to find the right companies to invest in as they go public.
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.
FAQ
How many times can an IPO be oversubscribed?
IPOs get oversubscribed frequently, which means that more investors want to buy shares than a company has available to issue. There isn’t really a limit as to how many times it can be oversubscribed, but depending on the category of investor, it’s not uncommon for IPOs to be oversubscribed dozens or even hundreds of times.
What is an IPO subscription rate?
IPO subscription rates are an estimate of how many bids are received for each investor category (such as retail investors and institutional investors), divided by the number of shares allotted for each category by the company. This helps determine the level of participation among investors in each category.
What does IPO subscribed 2 times mean?
Essentially, it means that demand for IPO shares is twice as high as the number of available shares. The degree of oversubscription is typically shown as a multiple, such as two times, or five times, or whatever the multiple might be. The higher the multiple, the more demand there is for shares.
What happens if an IPO is not fully subscribed?
If an IPO is not fully subscribed, a company may lower the price of its shares or reduce the number of them to try to attract more investors. Undersubscription typically signals low investor confidence and demand.
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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. This should not be considered a recommendation to participate in IPOs 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 more information on the allocation process please visit IPO Allocation Procedures.
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