As with any investment in shares, investing in an IPO carries risks. These are generally broadly disclosed in the prospectus and in any additional offering documents prepared by the company launching the IPO. Before applying for shares in an IPO, please ensure you have considered each of the following risk factors, in addition to those disclosed in the prospectus:
- Capital at risk — The value of shares can fall as well as rise, and you may get back less than you invest.
- Volatility — IPO shares can experience significant price swings in the days and weeks after listing.
- Limited track record — Newly listed companies may have a shorter history of public financial reporting, making it harder to assess their prospects.
- Oversubscription — If demand for the shares is high, you may receive fewer shares than you applied for, or none at all.
- Lock-up expiry — Existing shareholders (such as founders and early investors) are often prevented from selling their shares for a set period after the IPO (the so-called ‘lock-up period’). When that period ends, existing shareholders who were bound by the prohibition to trade, may sell their shares onto the market. This could exert downward pressure on the share price.
- Liquidity — In some cases, trading volumes may be lower than expected, which could make it difficult to sell your shares at the price you want.
- Suitability — An IPO investment may not be appropriate for all investors. Consider your financial circumstances, investment objectives, and risk appetite before investing.
- Independent advice — If you are unsure whether an IPO investment is right for you, seek guidance from an independent financial adviser.