In an IPO, companies sell a portion of themselves to the public for the first time. IPOs serve several purposes: it gives companies a way to raise money to fund their growth and it allows founders and venture capitalists the opportunity to cash in a portion of their investment.
While the companies, founders and investment capitalists stand to win big when the IPO finally hits the market, things don’t always pan out that way for investors who rush to buy shares on the first day. You accept a certain level of risk any time you invest. There’s always a chance that the investment won’t perform the way you expected. But IPOs come with another layer of risk that most investors overlook.
To learn more, watch Bruce Sellery explain the pitfalls of investing in an IPO.