IPO calendars are filling up again. Headlines talk about reopening capital markets, strong demand, and renewed confidence. Banks are busy. Founders are optimistic. Retail platforms are advertising access as if opportunity itself has returned. For retail investors, that enthusiasm should raise caution, not comfort. Heavy IPO issuance usually harms buyers. It usually means sellers are comfortable distributing risk.
An IPO is first and foremost a liquidity event and you are the potential liquidity. Early investors, venture funds, private equity sponsors, and founders are converting paper gains into public capital. Thank you. The marketing language highlights growth, disruption, and long-term potential and never the risks. They are some of the greatest (or worst) sales pitches you’ll ever see. The structural reality is simpler. Someone who knows the business well has decided current conditions are attractive enough to sell part of it. You might too if you were on the other side. That should frame the analysis.
We have seen this pattern before. The unicorn boom peaked in 2015 and then again in 2021, when abundant liquidity pushed private valuations to levels that public markets later struggled to justify. During the boom, private valuations soared. Narrative overwhelmed discipline. Companies were priced based on user growth and a total addressable market rather than durable economics. When those businesses moved to public scrutiny, the adjustment was uncomfortable.
Uber was one of the most anticipated offerings of its era. The story was enormous. The scale was undeniable. Yet years after its IPO, the stock traded below its offering price for two additional years. The issue was not ambition. It was the gap between narrative and public market accountability. Once exposed to quarterly discipline, capital intensity, profitability, and incentives mattered more than growth rhetoric.
WeWork never made it through the traditional IPO process in its original form. Once the governance structure and cash burn became transparent, enthusiasm collapsed. Narrative met structure. Structure prevailed. These were not isolated cases. They were reminders that private market optimism does not automatically translate into public market returns.
When IPO volumes accelerate, two conditions usually exist at the same time. Valuations are supportive, and insiders see a favorable window to monetize. That does not mean every deal is flawed. It does mean supply is responding to strong demand.
Retail investors often focus on first-day price action. Oversubscription becomes a proxy for quality. Social media amplifies urgency. Allocation feels like access to something exclusive. But the IPO process embeds distortions. Underwriters price deals to ensure success. Institutions receive preferred allocation. Limited initial float can exaggerate early moves. The first weeks of trading reflect positioning and psychology as much as long-term economics.
Early price action tells you very little about whether management will allocate capital rationally across a full cycle. What ultimately matters is structure. Incentives matter. Governance matters. Capital allocation discipline matters. Those variables determine whether growth converts into per-share value creation or simply larger scale.
Newly public companies lack a public track record in those areas. You cannot yet observe how management behaves under quarterly pressure. You cannot measure discipline when growth slows. You cannot evaluate acquisition behavior over time. You are underwriting projections before you observe behavior. That is a different risk profile from buying a company that has already navigated multiple public cycles.
The unicorn period demonstrated how easily narrative can overshadow discipline. Growth was celebrated even when unit economics were fragile. Valuations reflected optimism about optionality rather than clarity around cash flow. When markets demanded proof, prices adjusted. Even in Uber’s case, the opportunity improved only after cost discipline strengthened and incentives aligned more clearly with profitability. The investment case shifted from story to structure. That shift mattered far more than the original IPO enthusiasm.
The lesson was not that every IPO is bound to fail. The lesson was that IPO enthusiasm often embeds expectations that are too forgiving. Retail investors frequently arrive at the moment of maximum excitement. That is when marketing is strongest, projections are boldest, and coverage is most intense. It is also when asymmetry tends to favor the seller.
During hot markets, marginal businesses can list. Only the most robust companies try to go public during colder times. The quality mix shifts with sentiment. Investors should question not only the quantity of IPO offerings, but also the nature of the businesses entering the market. Remember SPACs? Are they durable operators with disciplined capital allocation histories, or are they growth narratives seeking liquidity? You do not need to avoid every IPO. Some become exceptional compounders. However, the standard of proof should surpass what the marketing suggests.
If you are evaluating a new listing, begin with incentives. How is management compensated? Are bonuses tied to revenue growth or return on invested capital? Is equity structured to encourage long-term ownership? Does leadership retain meaningful exposure post listing? Then examine balance sheet resilience. How dependent is the business on continued access to capital? What happens if growth slows or liquidity tightens?
Finally, evaluate valuation assumptions. Does the current price require flawless execution? Is profitability assumed rather than demonstrated? If flawless execution is required, the safety margin becomes narrow.
A straightforward inquiry cuts through the confusion. Why is now the right time for insiders to sell?
That question is not about bad faith. It is about incentives.
In my experience, durable returns are more often built in situations where structure is quietly improving rather than where enthusiasm is peaking publicly. Corporate separations and restructurings often create forced sellers. Favorable conditions for issuers typically drive IPO waves. Those are very different starting points.
Record IPO activity may be positive for capital markets. It is not automatically positive for retail portfolios. Slow down if you find yourself tempted to participate in a new offering. Let a few quarters pass. Watch how management communicates. Study how capital is deployed. Observe whether incentives translate into discipline.
Participation feels exciting. In reality, ownership requires patience. Markets will continue to cycle between optimism and caution. IPO windows will open and close. Retail capital will chase narratives. Discipline that compounds over time usually begins away from maximum excitement. When issuance reaches records and enthusiasm dominates analysis, history suggests retail investors often absorb the disappointment that follows.
It is not the IPO itself that creates risk. It is the combination of liquidity, optimism, and insufficient structural scrutiny. That combination has appeared before.
And it rarely favors the late buyer.
On the date of publication, Jim Osman did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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