What is an IPO and how to participate in it — Part 3

IPO (Initial Public Offering) is the initial public offering of a company's shares on the stock exchange. In simple terms: a private company sells its shares to a wide range of investors for the first time and becomes public. Let's break down how it works and how a private investor can participate.

Why Companies Go for an IPO

• Raise capital for growth, research, and expansion into new markets.
• Provide early investors (funds, founders, employees) an opportunity to realize profits.
• Enhance brand recognition and trust in the company.
• Use shares as currency for future acquisitions.

How an IPO Takes Place

1. Preparation. The company prepares a prospectus (in the U.S., Form S-1) that describes the business, risks, financial indicators. This is the main document for the investor.

2. Roadshow. Management meets with large institutional investors, presents the company, and gathers preliminary orders.

3. Pricing. Based on demand, the offering price and number of shares are determined. For example, the company might place 10% of its shares at $25 each.

4. First Day of Trading. Shares start trading on the exchange. The price can either rise (often due to hype) or fall.

How Private Investors Can Participate

For most retail investors, participation in an IPO occurs through a broker. Mechanics:

1. The broker receives a share quota from the underwriter.
2. The client submits a request to buy a certain number of shares at the offering price.
3. If demand exceeds supply, an allocation occurs: each person gets less than they asked for, proportionally or by other rules.
4. After the offering, shares are credited to the client's account.

Important: not all brokers provide access to IPOs, and not all IPOs are available to retail investors. Often the lion's share goes to institutions.

IPO Risks

• The price may drop in the first days or weeks of trading. Statistics: roughly 30-40% of IPOs trade below the offering price after a year.
• Allocation — you may not get all the shares you requested, only a portion.
• Information asymmetry — institutions have more data and contacts with management.
• Lack of history — a young public company has not yet gone through full market cycles.

Popular Myths About IPOs

Myth 1: "You can always make money on IPOs". Reality: many IPOs fall below the offering price in the first year. Investing should be done consciously, not driven by hype.

Myth 2: "If the company is well-known, the IPO is safe". Reality: even large brands can be overvalued. Facebook fell 50% after its IPO before recovering.

Myth 3: "You need to buy in the first minutes of trading". Reality: often the highest volatility and "hot money" occur in the first hours. Calm investors wait a few days or weeks.

IPO for Investors from Tajikistan

Through a licensed broker, one can participate in the IPOs of major American companies. Conditions and availability depend on the specific offering and the size of the order. Major IPOs (OpenAI, SpaceX, Stripe in the future) are usually available through a limited number of brokers with quotas.

Alternative to IPO — Buying After Listing

If you couldn't join an IPO or don't want to risk during the first days, you can buy shares of the company after the listing when the price stabilizes. This is less "romantic" but often more sensible in terms of risk.

What to Read Before IPO

• The issuance prospectus (Form S-1 in the U.S.) — especially the "Risks" section.
• Financial indicators: revenue, profit, margin, growth rates.
• Company valuation: P/S, P/E compared to peers.
• Insider and fund stakes — how much they retain after the IPO.

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💡 If you wish to start investing, you can open an account with a licensed broker in a few minutes. Deposits from 100 somoni, without visiting an office.

Advertisement. LLC "Stock Broker", licenses of the Ministry of Finance of the RT No. 007/25, No. 008/25, No. 009/25, No. 010/25 from 25.06.2025. Financial instruments involve risks. Returns depend on the market value of assets. Not an individual investment recommendation. The material is for informational purposes only.