The Road to the Stock Exchange

An IPO, or Initial Public Offering, is the process by which a private company decides to offer its shares to the public on a stock exchange for the first time. For companies, this step is not only a way to raise capital for future growth and development, but also a means to boost visibility and prestige. For investors and traders, an IPO represents a chance to be part of a promising company’s success from the beginning. Such an investment can yield significant profits, but it’s important to understand that the share price at the time of the IPO is based on the company’s valuation and future outlook, which may not always reflect its actual value. This can lead to price volatility depending on market conditions—optimism may increase demand, while uncertainty can cause sharp price declines.

Preparation and Execution

The IPO process involves careful preparation, execution, and the subsequent trading of shares. It begins with thorough planning, during which the company works with investment banks and experts to determine the optimal initial share price. In addition, the company must prepare all necessary documentation, including financial statements and business plans. A key part of this preparation is the so-called “roadshow” — a series of presentations where the company showcases its business and vision to potential investors and traders. This culminates on IPO day, when the shares officially begin trading on the stock exchange. Although the initial price is set in advance, it can change dramatically depending on supply and demand immediately after the market opens.

Lock-up Period and Stabilization

Following the IPO, there's an initial period often marked by volatility and price fluctuations. This usually stabilizes after the lock-up period — a timeframe during which employees and early investors are prohibited from selling their shares. Once this restriction ends, a larger volume of shares may hit the market, which can impact their value. This moment is critical to the company’s success in the public arena, as it helps set expectations for future performance and market reactions. Initial volatility, however, can present an opportunity for patient investors who believe in the brand's long-term growth.

Not Everyone Has the Same Chances

One common misconception is that IPOs are equally accessible to all investors. In reality, institutional investors often get priority access to shares at the so-called offering price before the stock even hits the market. Retail investors typically only gain access once the shares are publicly traded, at which point the price may be higher or highly volatile. This means they’re entering at a more speculative stage, often driven by hype or short-term trends. Additionally, not all trading platforms support IPO participation, further limiting the options for smaller investors and traders.

Stories That Changed the Business Landscape

A stock market debut can represent the dawn of a new era for a company—when an ambitious project transforms into a global player. Just look at some of the most iconic IPOs of all time. When Alibaba raised an incredible $25 billion in 2014[1], it catapulted into the ranks of the world’s tech giants. Facebook shook up Wall Street in 2012 with a $38 share price. Though its start was rocky, it has since become one of the most influential brands in the digital world[2]. And Google? In 2004, it took a different route and used a "Dutch auction" instead of a traditional IPO — a system in which investors state how many shares they want to buy and at what price, with the final price set based on demand. This more transparent distribution method helped Google make a strong market debut.

When an IPO Doesn’t Go as Planned

While some debuts are wildly successful, history also shows numerous cases where IPOs failed to meet public expectations, whether due to overvaluation, weak business models, or poor market conditions. A notable example is WeWork, whose 2019 IPO plans collapsed after financial weaknesses and concerns about business sustainability came to light[3]. Another misfire was Deliveroo, the UK-based food delivery service, whose shares dropped by over 30% on the first day of trading in 2021—making it one of the worst debuts in the history of the London Stock Exchange[4]. Even tech giant Uber had a disappointing IPO in 2019. Its shares fell below the offering price and took months to recover[5]. These examples show that not even big names and massive media buzz can guarantee success.

High Returns Come with High Risk

Investing in IPOs can be exciting, but also unpredictable. While success stories like Alibaba and Facebook are inspiring and show the potential for huge returns, failures like WeWork, Deliveroo, and Uber remind us that the market can be unforgiving. Going public is just the beginning. A company’s real success depends on its ability to deliver on promises. That’s why every investor should weigh not just the potential for high returns, but also the associated risks before investing in an IPO. Thorough research, realistic expectations, and the ability to handle volatility are key to ensuring that an IPO becomes an opportunity rather than a disappointment.

[1] https://www.cnbc.com/2014/09/22/alibaba-the-biggest-ever-ipo-after-more-shares-sold.html

[2] https://www.investopedia.com/ask/answers/111015/when-did-facebook-go-public.asp

[3] https://www.forbes.com/sites/greatspeculations/2019/08/27/wework-is-the-most-ridiculous-ipo-of-2019/

[4] https://edition.cnn.com/2021/04/02/investing/london-deliveroo-ipo/index.html

[5] https://www.cnbc.com/2019/10/03/the-uber-ipo-changed-everything-for-the-market.html