We need to have a talk today about something concerning I’ve noticed in the investment community: IPO’s. Enjoy! Add me on Instagram: GPStephan The YouTube Creator Academy:
Learn EXACTLY how to get your first 1000 subscribers on YouTube, rank videos on the front page of searches, grow your following, and turn that into another income source: $100 OFF WITH CODE 100OFF
Merch:
My ENTIRE Camera and Recording Equipment:
So lets start here: Why do companies IPO in the first place?
Well, it just has to do with one thing: MONEY.
Companies of a large magnitude will need MONEY to continue growing and expanding. Sometimes money is used for research and development, sometimes it’s used to expand into other territories, or to potentially acquire other, smaller companies and add to its world dominating control.
See, usually, when a company is still REALLY small, it’ll first be funded either out of pocket - or more commonly, through angel investors. These are investors who put in their own money to help a company get off the ground, and in exchange for that, they get equity ownership in the business.
Then as the business starts getting some traction, it’ll need MORE money…sometimes hundreds of millions of dollars. Usually this is where PRIVATE MONEY INSTITUTIONS begin pouring in, because rarely can one single person just throw in $100m on something that may or may not make any money back.
But after awhile, as the company gets bigger and stronger, this type of venture capital gets harder and harder to get. So when private capital just becomes harder to raise, sometimes an IPO is the only next logical step. This means the business can sell ownership in their company PUBLICLY, so that ANYONE can go and buy a $50 share of Smash The Like Button Incorporated, and the company can raise as much money as it needs.
So why does a company IPO?
First, it’s common that a company in its growing stage will postpone making a profit for the sake of growth. They’ll often operate at a loss JUST to gain market traction, and then decide to profit later.
But…we now have the SECOND, NOT SO OBVIOUS reason companies need more money…
IN MY OPINION…sometimes the company will need money as a way to cash out while they still can, or just to keep the gravy train running. Or, a company might simply just be running out of money - unable to make profit - and they need more money to continue the ride until they can find a plan to one day make profit.
Why is an this a bad thing? Well, I don’t believe it’s all inherently bad, and I think there can be a lot of amazing advantages to doing an IPO…but what I DO see as a concern, is the recent valuations of BILLION DOLLAR COMPANIES that are unprofitable, and may never make a profit…but they go public, people buy them up, and then they drop in value as the hype wears down.
Now, here’s what I’m getting at: this is just a rant I needed to say, because I enjoy talking about this, but most importantly, it’s just to serve as a reminder that media attention, hype, and frenzy does not equate to a profitable investment. All of these things are temporary, and once the hysteria begins settling down, you’re left with the actual question: is this a company that’s worth what I’m paying for it, and will they EVER make money? And also think…is actually a GOOD deal for me to buy it based on the fundamentals of other, similar companies? If the answer is no…then don’t do it. If you can’t afford to lose money, don’t do it. End rant.
For business or one-on-one real estate investing/real estate agent consulting inquiries, you can reach me at GrahamStephanBusiness@gmail.com
0 Comments