How the Stock Market Works Season 1 Episode 16 Making Sense of IPOs

Making Sense of IPOs is the sixteenth episode of the first season of How the Stock Market Works. In this episode, the viewers will get an understanding of Initial Public Offerings (IPOs), the process through which a private company offers shares to the public for the first time.

The episode starts by introducing the concept of IPOs and why they are important for companies. IPOs provide companies with access to public capital, which they can use to fund their growth and expansion. At the same time, IPOs offer investors an opportunity to participate in the success of a promising company.

The show then moves on to explain the different steps involved in an IPO. First, the company needs to select an underwriter, which can be an investment bank or a group of banks. The underwriter helps the company prepare the offering prospectus, which includes detailed information about the company's business, financials, risks, and other relevant factors. The prospectus is reviewed and approved by the Securities and Exchange Commission (SEC), which regulates the public offering process to ensure investors are protected.

The next step is the roadshow, where the company's executives and the underwriter visit potential investors to promote the IPO. The roadshow can last for several weeks and involve hundreds of meetings with institutional investors, such as mutual funds, pension funds, and hedge funds. The goal of the roadshow is to generate enough interest and demand for the IPO, which can help to set the offering price.

The episode then explains the difference between the offering price and the market price. The offering price is the price at which the company sells its shares to investors in the IPO. The market price is the price at which the shares trade on the secondary market after the IPO. The market price can be higher or lower than the offering price, depending on the supply and demand dynamics of the market.

The show also highlights some of the risks and challenges of investing in IPOs. For example, IPOs are typically priced at a premium to the company's intrinsic value, which means that investors may pay more than the company is worth. Additionally, IPOs are often volatile and can experience significant price swings in the early days or weeks after the IPO. Therefore, investors need to have a long-term perspective and a thorough understanding of the company's business and market before investing in an IPO.

The episode wraps up by discussing some of the recent trends and developments in the IPO market. For example, the rise of special purpose acquisition companies (SPACs) has disrupted the traditional IPO process by allowing private companies to go public through a merger with a blank-check company. SPACs have become increasingly popular in recent years, but they also face scrutiny from regulators over their disclosures and investor protections.

Overall, Making Sense of IPOs is a comprehensive and accessible guide to the IPO process. The episode provides valuable insights and tips for investors who are considering investing in an IPO, as well as for entrepreneurs who are thinking of taking their companies public.