What Is an IPO — and Should You Buy In?
Every few years, a company goes public and the hype is deafening. Here’s what’s actually happening — and what it means for your money.
This post is for educational purposes only. It is not financial or investment advice for your specific situation. Please consult a qualified professional before making investment decisions.
Every once in a while, a company goes public and your entire feed loses its mind.
People who have never bought a stock in their life are suddenly asking whether they should “get in early.” Financial news anchors are talking about it like it’s a once-in-a-generation opportunity. And somewhere in the back of your mind, a small voice asks: Should I be doing something?
That feeling has a name. It’s FOMO — and it is one of the most expensive emotions in personal finance.
Before you act on it, here’s what you actually need to know about IPOs.
What Is an IPO, Exactly?
IPO stands for Initial Public Offering. It’s the moment a private company decides to open up ownership to the general public for the first time.
Up until that point, the company is privately owned. Its shares belong to a small group of people: the founders, early employees, and professional investors like venture capital firms. These are people who got in years ago, often when the company was just an idea, and took on significant risk in exchange for an ownership stake.
When a company goes public, it lists its shares on a stock exchange — the Nasdaq or the New York Stock Exchange, for example. From that point on, anyone with a brokerage account can buy a piece of the company.
The company uses the IPO to raise money, the early investors get a chance to cash out some of their stake, and the public gets access to shares. That’s the basic transaction.
The IPO is not the beginning of the company’s story. It’s the moment the original investors get to sell.
Who Actually Makes Money on an IPO?
Here is the part that rarely gets talked about in the excitement: by the time you can buy in, the people who are going to make the most money already have.
Think about it this way. A venture capital firm invests in a company when it’s worth $10 million. Years later, that company goes public at a valuation of $10 billion. The VC firm’s stake is now worth 1,000 times what they paid for it. The IPO is their exit — it’s the moment they get liquidity on that investment.
Early employees with stock options are in a similar position. They accepted lower salaries in exchange for equity, took on years of risk and uncertainty, and the IPO is their payday.
As a retail investor — an everyday person buying through a brokerage account — you are not getting in early. You are buying from people who got in early. That distinction matters enormously.
And it gets more specific than that. When a company prices its IPO, institutional investors — pension funds, hedge funds, large asset managers — typically receive the majority of the shares at the IPO price. Retail investors often get a small allocation, if any. If you’re buying on the open market on day one, you’re buying at whatever price it’s trading at after it opens — which is almost always higher than the IPO price.
What Does the Data Actually Say?
The narrative around IPOs is built on the outliers — the companies that went public and made early buyers very rich. Amazon. Google. Apple.
The data tells a less exciting story.
A Reuters analysis of the 25 largest global technology IPOs found that 16 of them declined in their first 12 months from their debut day closing price. Eight of the ten biggest fell by between 25% and 71%.
Research from Truist Advisory found that major tech IPOs have seen an average decline of 55% from their peak in the first year of trading.
The pattern is consistent: a stock launches with excitement, climbs on day one as the hype peaks, and then reality sets in as investors start actually analysing the business. The people left holding when that happens are usually the ones who bought into the momentum.
The outliers — the IPOs that made people rich — are famous precisely because they’re rare.
Why IPOs Feel Different
There’s a reason IPOs generate so much emotion, and it’s worth naming directly.
Most investing is quiet and unglamorous. You put money into a diversified fund every month and wait. Nobody is talking about it at dinner. It doesn’t make headlines. It doesn’t feel like you’re doing anything exciting.
An IPO feels like an event. Like being invited to something. Like you have a chance to be part of a story while it’s still being written.
That feeling is real. And financial markets are very good at monetising it.
For first-generation professionals especially, there is often an additional layer: a sense that building wealth means finding the right opportunity at the right time. That the people who “made it” did so by seeing something others didn’t. That missing this IPO means falling further behind.
That narrative is not true. And it is expensive to believe.
Wealth is not built on a single well-timed bet. It is built on consistency, time, and a plan that works regardless of what is in the news this week.
Want a real-world example? I broke down a recent high-profile IPO in detail on the Emotions + Math YouTube channel — the financials, the governance structure, and what the history of IPO performance tells us about buying in on day one. Watch it here →
What to Do Instead
The alternative to chasing IPOs is not doing nothing. It’s doing something quieter and significantly more effective over time.
Index funds and exchange-traded funds (ETFs) let you own a small piece of hundreds or thousands of companies at once, automatically weighted by size. When one company underperforms, others carry the weight. When the market grows over time — which, historically, it does — you grow with it.
The costs are low, the strategy is simple, and you don’t need to predict anything.
The research on this is consistent across decades: a low-cost, diversified portfolio held for the long term outperforms most attempts to pick individual stocks or time the market. Including IPOs.
Time in the market consistently beats timing the market. That is not a slogan. It is what the data shows.
The Bottom Line
Missing an IPO is not a financial loss. It is a decision to skip a speculative bet in favour of a strategy that has actually worked for most investors over time.
The next time your feed fills up with IPO excitement, ask yourself a few things:
Who is selling these shares, and why now?
What does the company actually earn, and what am I being asked to pay for it?
Am I making this decision based on information, or based on not wanting to miss out?
Those three questions will serve you better than any hot tip.
Before You Invest, Know Where Your Money Is Going
The Bridge Spending Plan helps you get clear on what’s coming in, what’s going out, and what’s actually available to invest — especially when you’re managing your own financial goals alongside family obligations.
