The World of Going Public: Essential Information Every IPO Investor Must Know

Understanding the Meaning of Public Offerings and Basic Knowledge of Company Listings

Initial Public Offering (IPO) is the process by which a private company sells shares to the general public for the first time, entering the public market. Through this process, the company secures necessary capital, and investors gain the opportunity to participate in companies with growth potential.

There are various reasons why a company chooses to issue an IPO. Primarily, capital raising is the main purpose, enabling the company to secure large-scale funds needed for research and development, business expansion, or debt repayment. For example, Coupang’s IPO in 2021 raised approximately 4 trillion won, significantly strengthening its logistics and delivery infrastructure.

Additionally, going public greatly enhances a company’s credibility in the market. Regular financial disclosures and transparent information sharing build trust among customers, partners, and investors, forming the foundation for global business expansion.

IPO shares also offer early investors an opportunity to recover their investments. Venture capitalists, private equity funds, and founders can sell their holdings in the market, and employee stock options can also lead to substantial profits.

Why IPOs Attract Attention in the Investment Market

Investors are interested in IPOs because they can invest at relatively undervalued prices during initial entry. The stock prices at listing often reflect market expectations and tend to surge, allowing early investors to realize significant gains.

IPO investments also serve as a gateway to new industries. Tesla’s 2010 IPO, which pioneered the electric vehicle market, opened investment opportunities across the entire industry and yielded over 350 times returns for early investors. Similarly, Palantir’s IPO provided investment opportunities in AI and big data markets.

After listing, companies are required to regularly disclose financial status and management information, enabling investors to evaluate corporate value more transparently. The trading of shares in the open market increases liquidity, and dividend payout structures are established. Apple and Microsoft, for example, provide stable cash flows to long-term investors through consistent dividend policies.

The Dual Nature of IPO Investments: Opportunities and Risks

IPO investments carry the potential for high returns but also involve significant risks.

Positive aspects include the possibility of rapid price surges, opportunities to enter growing companies, free trading after listing, transparent corporate information, and portfolio diversification. Companies in high-growth industries are especially likely to sustain growth even after going public.

Risks include high volatility, sharp declines due to underperformance, lock-up periods restricting sales immediately after listing, inaccurate valuation due to lack of pre-listing information, and high uncertainty in emerging industries. For example, WeWork’s suspension of its IPO in 2019 and subsequent bankruptcy in 2023 illustrate how excessive spending and management issues can erode investor trust.

Additionally, Roblox’s stock rose from an IPO price of $45 in 2021 to $77, but has since fallen over 50% due to intensified competition. K-Bank in Korea also postponed its listing schedule in 2024 due to low institutional investor interest during the IPO process.

Characteristics of the Global IPO Market and Investment Environment

Korean IPO Market is dynamic, with innovative companies in fintech, biotech, and other sectors going public one after another. Government startup support policies and increased venture capital investments underpin this trend, but complex procedures and taxation policies can pose barriers for foreign investors.

U.S. IPO Market is the largest in the world, centered around NASDAQ and NYSE. It features active listings in technology and biotech sectors. The strict regulations of the U.S. Securities and Exchange Commission (SEC) strengthen investor protection but also create entry barriers.

Hong Kong IPO Market functions as a hub for Chinese companies listing abroad, with giants like Alibaba going public. While high liquidity is an advantage, policy changes by the Chinese government and geopolitical risks contribute to market volatility.

Strategies for Success in IPO Investing

( Importance of Fundamental Company Analysis

Success in IPO investing begins with thorough company analysis. Key financial indicators such as profitability, debt ratios, and cash flow should be carefully examined. Just as Apple maintained a solid financial structure and innovative product development from its 1980 IPO, a strong financial foundation is essential for long-term success. Microsoft also has grown steadily since its 1986 IPO by maintaining profitability and market dominance.

) Industry Growth Potential Evaluation

The outlook of the industry in which a company operates is a critical evaluation factor. Companies in high-growth sectors like AI, cloud computing, and biotech are likely to continue growing rapidly after listing. Conversely, companies in traditional sectors like retail or wired communications face higher risks of stock decline due to market contraction. Industry analysis using research reports and data from market research agencies is essential.

( Management Team Assessment

The experience and leadership of the management team are especially crucial for startups’ future. It is important to review resumes, LinkedIn profiles, media reports, and past achievements of executives comprehensively.

) Capital Management and Risk Diversification

Funds allocated for IPO investments should be limited as part of the overall portfolio, given the high potential for both gains and losses. Instead of concentrating on a single IPO, diversifying across industries such as technology, healthcare, and finance can minimize losses caused by sector downturns.

Furthermore, during periods of rising interest rates, growth stocks tend to underperform, so macroeconomic conditions and investor sentiment should also be considered.

Conclusion: Finding Opportunities in Caution

While IPOs offer significant growth opportunities for both companies and investors, they also entail high volatility and risks. To succeed, investors must thoroughly analyze the company’s financial health, industry prospects, and management capabilities, and systematically manage risks through proper capital planning and diversification.

Since the IPO market varies according to each country’s economic situation and policies, closely monitoring market environment changes is vital. By consulting experts and developing strategies aligned with personal investment goals and risk tolerance, IPOs can become attractive long-term investment opportunities with the potential for high returns.