Discover the mechanics of IPO investing, from understanding share allocation to researching new listings.
By the Inspired Investor Team, Direct Investing
An initial public offering, or IPO, is the first time that a company’s shares become available on the public markets—meaning it’s the first time you can buy and sell it on a public stock exchange.
This is sometimes referred to as a company “going public.”
Why do companies go public? One big reason is to raise capital to support future plans.
However, not all companies choose to go public. In fact, since the 1990s, the number of public-company listings in the U.S. has fallen by about half.1
In general, the IPO market has been slow for the past several years. The volume of IPOs being discussed for this year, as well as the stature of the companies involved will definitely be driving some conversations about IPOs online.
An IPO isn’t the first time that people necessarily get access to owning a piece of a company. Before going public, it is a private company where shares can be granted to founders, early private investors or key employees. This can be referred to as pre-IPO investing.
In order to preserve market stability for a newly traded stock from an IPO, insiders and early investors typically have what’s known as a lock-up period. During this, they cannot sell shares they owned before the IPO.
It’s impossible to predict the future—some IPOs experience a big jump upon launch (sometimes supported by a deliberately low IPO target price) while others fall below their launch resulting in a lower share price. The latter is often called a “broken IPO.”
Either way, a company’s IPO is just the beginning of its public story. It can sometimes take days, weeks, months or even longer before the market finally agrees on the value of a company’s stock.
For example, Facebook (now Meta) stock dropped by more than 50 per cent in the five months after its listing in 2012.
Tesla is another interesting story. The IPO price of Tesla stock was US$17, and when you adjust for splits that works out to about $1.13 per share. As of May 27, 2026, it was around $442 per share,2 but it was a tumultuous journey to get there.
Whatever you do, expect to deal with some ups and downs when it comes to IPO investing and consider your investment horizons when planning your investment choices.
The volatility and lack of public trading history can make IPOs a riskier investment, so be sure to do your own research before investing.
If you participate in an IPO, it is possible to get allocated shares as soon as they are available on the public markets.
What does this mean? Think of it like concert tickets. You can usually buy tickets directly from the artist as soon as they go on sale for face value, but the number of tickets available is limited. If you miss the initial ticket sale, you can buy on the resale or secondary market—but at a price based on market demand, which could be significantly higher (or lower) than the face-value cost.
If you are allocated shares in an IPO, that’s like getting a ticket right when they go on sale to the public—you get the IPO price set by the company rather than the market price. If the price of the concert ticket goes up, you have the chance to resell the tickets at a profit, but there is also some risk that the price could go down and you might have been able to purchase them more cheaply, or you could have to sell them at a loss.
One of the challenges with a new listing is that there’s not always a lot of public information about the company’s financials to help inform investors on whether the business has potential. While it can be valuable to use personal experience to decide whether the company may be a good one—say if you love a product or rave about it to friends—ideally, you still want to look at the data.
A company that wants to go public must file a prospectus with securities regulators. The prospectus outlines the company’s financial history, a description of its management team, risks associated with the company and other important information.
In Canada, the prospectus can be found on a public website called System for Electronic Document Analysis and Retrieval (SEDAR+), which is managed by the Canadian Securities Administrators (CSA). The U.S. equivalent is EDGAR, which is run by the Securities and Exchange Commission.
IPOs can be an exciting part of your investment journey, but investing in them can come with a significant amount of volatility. Be sure to do your research and make sure that any IPOs you consider serve your goals and don’t exceed your appetite for risk.
Sources:
This article was originally published on RBC Direct Investing .
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