We have seen that 2018 has been a record year for IPOs. In the first 9 months of 2018, 173 companies have been listed on public exchanges, compared to 160 last year. Will 2019 be another record-breaking year? The data certainly points to this premise.
Strong drivers may result in various tech IPOs next year
The economy is strong. Further, unemployment rates are low and investor optimism is sky-high resulting in rising tech valuations. Several tech companies such as Airbnb ($31B), Uber ($72B), Slack ($7B) and Lyft ($15B) could all go public in 2019.
Uber remains the most anticipated IPO in years despite its slowing growth and high operating losses. Uber reported a net loss of $1.07B in the third-quarter of 2018. While Uber is currently valued at $72B, it might go public at a valuation of close to $120B. Uber might easily be the biggest IPO in history.
Chinese heavyweight Alibaba [BABA] currently holds this title as it offered $25B in 2014 at a valuation of $120B.
Record money raised by VCs
In the first 9 months of 2018, 173 domestic IPOs have raised $45B. This is a 50% year-over-year increase compared to the same period last year. The year has seen the strongest IPO activity since 2014. It might very well lead to a glut of tech companies going public next year.
Venture Capitalists (or VCs) might very well have the front row seat at Wall Street next year and exit the market with billions in their pockets once these tech companies go public.
Early Uber Investor: ‘I’m Happy With Uber’s Poor IPO’
Lance Armstrong may not have gotten his $3B on his $100K investment, but his $100K still got a proper HGH/steroid boost.
And despite the rough outing, early investor Mitchell Green says he’s happy with the current IPO price—despite falling WAY south of its initially rumored $120B level.
And no, it’s not the Mitch Green, the one who got into a street fight with Mike Tyson.
Uber rich Mitch Green looks like this:
Anyway. Green says he’s happy with the current pricing. Check out the video to see why.
‘Going Public’: IPO, Explained
It’s a buzzword we hear constantly—and one that’s sure to generate tons of headlines. Alibaba had the largest in history (before its billionaire founder decided he wanted to quit to be a grade school teacher.)
Lyft IPO’d recently also, beating arch rival Uber to the proverbial punch.
Other than being a buzzword and a big story, what exactly is an IPO?! Well, let’s break it down.
What is an IPO?!
In technical terms, an Initial Public Offering (IPO) is the first sale of stock issued by a company to the public. In other words, this is the moment when a private company goes “public” by offering its shares for sale to the public.
So when a company does go public, the valuation usually spikes dramatically—and the company can now use the funds from the sale of shares to feed the business. It’s a fabulous funding source for a company.
Before that, what is a company?
Prior to going public, a company is a privately-owned firm. Obviously. The company initially attracts investments or seed capital from the co-founder, friends, and families.
Business investors such as venture capitalists, private equity companies and angel investors pump in money if they are optimistic about long-term prospects and sustainability of the company.
On the flip side of things, you sometimes have companies that decide to go “private,” like Elon Musk said he wanted to do with Tesla.
Why does a company opt for an IPO?
The biggest advantage for a publicly listed company is access to capital. This capital can be used to purchase machinery, fund research and development or pay off any existing debt.
The firm will then be listed on a public exchange and provides an exit route for business investors and founders.
When Facebook went public, Mark Zuckerberg sold 30M shares worth $1.1B. An IPO is the most common way for investors and VCs to make a significant return on their investment. In fact, it’s considered the ultimate exit for founders.
How much capital do the companies get?
Let’s run down the list.
Top tech unicorns such as Uber, Slack, and Airbnb are on course to file for an IPO over the next 18 months.
The company that is looking to go public hires an investment bank to underwriting the IPO process. Investment banks can either work together or individually in this process.
What do the investment bankers do?
In other words, all the boring admin stuff. In exchange for this, they collect a nice fat fee, usually anywhere from 4-7% of gross proceeds.
Those involved hold several meetings to finalize the IPO process and determine the timing of the filing. Once this is wrapped up, they shift to performing the due diligence to ensure the company’s registration statements are accurate.
The due diligence tasks include market due diligence, legal and IP due diligence, financial and tax due diligence. At the end of this process, the companies then file for an S-1 Registration Statement.
The S-1 is usually what tips off the press and the public that a company is about to go, well, public.
And what’s the S-1?
The S-1 statement includes information about the companies’ historical financial statements, company overview, risk factors, and other critical data.
A pre-IPO analyst meeting is then held post the S-1 Registration Statement to educate analysts and bankers about the company.
A preliminary prospectus can also be drafted at this stage. The underwriting investment bank conducts pre-marketing to determine the interest of institutional investors and the price they are willing to pay per share.
Now you’re ready to go public
The price range for an IPO is set and the S-1 Registration Statement is amended with the price range. The company’s management organizes road shows and marketing activities to generate interest for the upcoming IPO.
Based on investor interest, the price range per share can be revised. The investors will apply for company shares and this application window is open for generally 2-4 days. The company shares can be oversubscribed or undersubscribed.
Once the IPO is priced, the investment banks will allocate shares to investors where the stock will now be available for trading in the secondary market.
At this point, a company is now ready to go public. Here’s how people usually look when that happens.
Congrats. You’re now an IPO expert.
[VIDEO] Penny Stocks, Explained
Penny stocks are equity investments that are traded outside major exchanges. These stocks are traded at low prices and have a small market cap. As penny stocks are illiquid and highly speculative, they carry a high risk of investment.
The US Securities and Exchange Commission (or SEC) defines penny stocks as shares with a value of less than $5. Typically, a penny stock is traded over the counter or by using pink sheets.
Despite the high risks of investment, penny stocks can be a lucrative form of investment because of its low price and higher prospects of return.
Suitable for investors with a high-risk tolerance
Investing in equity markets is risky, particularly because it’s driven by price fluctuations and volatility. Investors in penny stocks will generally have a higher threshold of risk tolerance. Penny stocks are far more volatile than blue-chip stocks.
Investors hence need to take precautions while investing in penny stocks. They need to have a stop-loss order prior to entering into a trade. This will minimize the amount of downside potential in case the markets move in the opposite direction.
Penny stocks also provide an opportunity for significant companies. These companies are generally high-growth ones but with limited cash resources.
Why are penny stocks attractive to the average retail investor?
Generally, the average retail investor associates a low price stock as a bargain. But this cannot be farther from the truth. A stock can be overvalued at $1 and can be undervalued at $250.
The average investor fails to understand this due to limited investing knowledge. Penny stocks are trading at lower values for a reason. They might experience a bull run resulting in a significant price appreciation but can also come crashing down in no time. It is far easier to manipulate penny stocks.
The “Caveat Emptor” principle should be applied when investing in penny stocks. Sure, there are success stories even for penny stock investors, but is worth the risk?