Foundations / Tier 01 — Ground Level
IPOs
How a company comes to market, who gets paid at each stage, and how to think clearly about an offering that is being sold to you.
2 min read · YMagnify Research · Reviewed August 2026 · Free, no signup
The short version
An IPO is the first time a company sells shares to the public — and the first time outside investors can exit.
There is no long public trading history to lean on, and the timing was chosen by the seller.
The prospectus is the most useful document you will ever ignore. The risk section in particular.
What actually happens
A private company decides to list. It appoints investment banks as underwriters, prepares audited financials, and files a registration document with the regulator — the SEC in the United States, equivalent bodies elsewhere. That document, the prospectus, sets out the business model, the financials, the ownership structure, and the risks.
The underwriters then price the offering and place shares with institutional investors during a roadshow. On listing day, trading opens and the price discovers its own level, sometimes violently. The money raised in the offering goes to the company, to selling shareholders, or to both — and which of those it is tells you a great deal.
Follow who is selling
This is the single most useful lens for evaluating an IPO, and it takes about ten minutes to apply. Read the use-of-proceeds section. If the company is raising new capital to fund growth — building capacity, entering markets, paying down expensive debt — the incentives of existing owners are broadly aligned with yours. They are staying in and want the business to compound.
If a large portion of the offering is existing shareholders cashing out, that is not automatically damning, but it is information you are entitled to weigh. Early investors and founders are permitted to take money off the table. They are also the people with the most complete knowledge of the business and the most control over timing.
Which leads to the structural point: companies list when conditions favour sellers. Nobody chooses to go public into a hostile market if they can wait. The window you are being offered was selected by someone with better information than you have.
Why the numbers are harder to read
With an established listed company, you have years of reported results, several economic environments, and a track record of guidance kept or missed. With an IPO you have a curated history, prepared with professional help, for a business that has never operated under quarterly public scrutiny.
None of that means the numbers are false. It means they are unseasoned. You have not yet seen how this management team behaves when they miss, how the business performs in a downturn, or whether the growth rate survives contact with public-market cost discipline. That uncertainty is real and it deserves to be priced.
It is also worth checking the lock-up period — typically 90 to 180 days, during which insiders cannot sell. Its expiry frequently coincides with supply arriving in the market. That date is public. Very few retail buyers ever look it up.
What a sensible evaluation looks like
Read the prospectus, and read the risk factors specifically — they are written by lawyers protecting the company, which means they are unusually candid about what could go wrong. Look at revenue growth and, more importantly, its quality. Check whether the business generates cash or consumes it. Look at who runs it and what they have built before. Compare valuation against listed peers rather than against the excitement in the room.
And be honest about your reason for wanting in. Wanting exposure to a business you understand is a thesis. Not wanting to miss something everyone is discussing is an emotion. They can feel identical at the moment of purchase and they produce very different outcomes.
The words that keep coming up
Prospectus
The registration document filed with the regulator. Contains the financials, the business model, and a genuinely candid risk section.
Underwriter
The investment bank that prices and places the offering. Paid by the company — worth remembering when reading their research.
Lock-up period
The window after listing during which insiders cannot sell. Its expiry often brings a wave of supply. The date is public.
Every IPO is someone informed selling to someone less informed. That does not make it a bad trade — it makes it a trade you should price accordingly.
Fear of missing out is a position size problem
IPOs generate a specific emotional pressure that is worth naming precisely, because naming it is most of the defence. It is not greed exactly. It is the fear of watching something rise without you — of being outside a story that everyone around you is inside. That feeling is genuinely uncomfortable, and discomfort is what makes people abandon process.
Watch what it does mechanically. It does not usually change your view of a company. It changes your size. You were going to take a small speculative position; instead you take a meaningful one, because a small position would not feel like participating. Then the stock falls 30% in the first month — which is entirely normal for a newly listed business — and you are now managing a position that is too large to sit through and too painful to sell.
The discipline is boring and it works. Decide your maximum size for unseasoned positions in advance, as a fixed rule, when nothing is listing and you feel nothing. Then apply it without negotiation. You are not trying to eliminate the fear — that is not available. You are trying to make sure the fear cannot reach the size box.
That was the uncomfortable part. There is more of it.
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Three things to actually do with this
Read the use of proceeds
Ten minutes in the prospectus tells you whether this is funding a business or funding an exit.
Find the lock-up expiry
Mark the date. Supply arriving is predictable, and predictable things should not surprise you.
Cap unseasoned positions
Set a fixed maximum size for anything without a trading history, and set it before you want the trade.
Common questions
Should I buy shares on the first day of an IPO?
What is a lock-up period?
What should I read before considering an IPO?
Read next in the library
Where this sits in the bigger picture
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