By Meg Flippin, Benzinga

DETROIT, MICHIGAN - June 30, 2026 (NEWMEDIAWIRE) - Initial Public Offerings can be among the most exciting opportunities available to investors, especially in the age of tech startups with red-hot growth, and they also come with increased risk. But what exactly are they, and how can retail investors participate?

Private companies that need capital can raise it by selling shares in the company to investors in what is known as an initial public offering or IPO.

An IPO is one method companies may use to raise capital and is a direct path to trading on a U.S. stock exchange, where stocks can be traded publicly. In exchange for selling a piece of the company to the public, it can boost its profile and get cash to grow.

For investors, IPOs can provide an opportunity to purchase shares before a company begins trading publicly. Some investors participate in IPOs in hopes the company’s value will grow over time, but IPO investments also involve significant risks, including price volatility and uncertain performance after the stock begins trading. As with any investment, it’s important to carefully consider both the potential opportunities and risks before investing in an IPO.

The IPO Process

In order for a company to go public, it is required to file a prospectus with the U.S. Securities and Exchange Commission. In the filing, which the company uses to inform investors, it lays out all the key information about the business, including its financial history, current revenue and debts, potential risk factors and plans for the newly raised capital. It also lists the details of the offering.

A company will typically hire an investment bank or bankers to act as underwriters or buyers of the shares before selling them to the public. The underwriter helps the company come up with the offering price, the number of shares to be sold and the timing of the listing.

The company also has to select whether it wants to list on the New York Stock Exchange or the Nasdaq Stock Exchange. Both exchanges have different listing standards and can appeal to different companies and investors based on their needs.

Who Gets IPO Shares

Typically, the underwriters offer IPO shares to institutional investors and company insiders. It’s often a complicated and selective process because underwriters want to sell IPO shares to individuals who will remain long-term investors.

If it is a popular company, an IPO can become oversubscribed, which means there are more investors than shares. An IPO is typically priced the day before it starts trading, and it may go up or down depending on investor demand.

Some IPOs will have a lock-up period during which IPO investors are not allowed to sell shares. The lock-up period can range from 90 to 180 days. It’s not uncommon for the stock to fall when a lock-up period expires as some investors seek to cash out if the shares have appreciated.

Not everyone can purchase shares in IPOs, although it’s a lot easier now than it was years ago. That credit goes to digital platforms like SoFi (NASDAQ: SOFI), which allow everyday investors to request IPO shares with no account minimums. Before companies like SoFi came on the scene, IPO shares were relegated to institutions and high-net worth investors with connections.

SoFi may participate in certain IPO offerings through relationships with underwriters and other market participants, acting as part of the underwriting syndicate to distribute shares to retail investors. SoFi Securities provides eligible members access to IPOs by allowing users to browse upcoming offerings directly in the app, review the prospectus and submit an Indication of Interest to request a specific number of shares before the company begins public trading.

SoFi Securities seeks to level the playing field, providing access to IPOs to retail investors. Click here to check out their website.

Pros And Cons Of Investing In An IPO

When it comes to investing in IPOs, there are pros and cons investors should be aware of.

The pros include:

• It gives you early access to a company that has the potential to grow before trading begins.

• Some IPOs experience significant price movements after trading begins, although gains are not guaranteed.

• IPOs can be liquid. Shares of publicly traded companies can generally be bought and sold on an exchange, although trading volume and liquidity can vary.

• They can diversify a portfolio and give investors access to innovative companies.

• Public companies are required to file their financials with the SEC, providing transparency and accountability to investors.

The cons include:

• IPOs can be volatile and experience huge price swings.

• Not every company is going to be the next big tech giant. Many IPOs that skyrocketed fall below their IPO price days later.

• The companies have a limited history, which can make it hard to determine their long-term viability.

• When the lock-up period expires, it could put a lot of downward pressure on the stock.

• Some companies going public may trade at valuations that investors later determine are difficult to sustain.

Before Investing In An IPO, Do Your Due Diligence

If you are interested in investing in an IPO, it's important to do your due diligence first. That means reading the entire prospectus, making sure you understand what the company does and how it makes or intends to make money.

When looking over the prospectus, pay special attention to the company’s business model, revenue streams and competition. Also, look at its valuation and compare it to peers in the same industry to determine what you believe is its true value. Don’t skim over the risk factors. That section of the prospectus can clue you in to any potential red flags.

Finally, check what the company plans to use the proceeds from the IPO for. Is it to fuel growth, or is it because insiders or investors are looking to cash out?

IPO investing is a way to get in on a company before it trades on the public market. Platforms such as SoFi now provide retail investors with access to certain IPO offerings. To learn more about IPO investing through SoFi Securities and to get started, click here.

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA(www.finra.org)/SIPC(www.sipc.org).

Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of losing principal. Key risks include, but are not limited to, unproven management, significant company debt, and lack of operating history. For a comprehensive discussion of these risks, please refer to SoFi Securities' IPO Risk Disclosure Statement. This is not a recommendation and does not constitute an offer of any securities for sale. Investors must carefully read the offering prospectus to determine if an offering is consistent with their objectives, risk tolerance, and financial situation. New offerings often have high demand and limited shares. Many investors may receive no shares, and any allocations may be significantly smaller than the shares requested in their initial offer (Indication of Interest). For more information on the allocation process, please visit IPO Allocation.

Featured image from Shutterstock.

This content was originally published on Benzinga. Read further disclosures here.

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