When taking this bold step, the organization undertakes its initial Public Offering (IPO) and sells shares of its stock to the public. If you are an investor, you can buy shares at this stage if you think the company has a high growth potential.
Investing in IPOs can be risky because they involve companies that have just gone public and lack historical performance. But with the right strategy, you can always get the best out of the investment. Here are pro tips to guide your decision to invest in newly listed stocks.
Seek Expert Training
This is a no-brainer, but sometimes, new investors overlook it. Investing in stocks has its fair share of complexities. For instance, you must tackle complicated tasks like risk assessment and market analysis.
Understanding such concepts can be difficult if you are a newbie in the industry. To ensure you know what you’re doing and are better positioned to invest prudently, start by taking stock market trading courses. Once you’re knowledgeable enough, dive in and make the best out of the resources.
#1 - Do Your Homework
IPOs are associated with private companies. Unfortunately, no set rules mandate that a private company must share all its financial information with the public. Most entities often cherry-pick details that are more likely to be favored by most investors and hide sensitive information like pending legal issues and financial projections.
To avoid making uninformed decisions regarding an IPO, research extensively before investing. You can start with an in-depth scouring of the internet and pouring through past press releases and financial statements. Don’t forget to study aspects like competitive dynamics and asset market size.
#2 - Gauge the Involved Brokers
Before investing in an IPO, you must gauge the lead broker backing it. Remember, where IPOs are involved, brokers have one indispensable role: to ensure their client raises the funds it needs to keep up and running. And reputable organizations who value their brand will always go with brokers with proven track records and sufficient experience.
If you want to make a safer investment, choose an IPO backed by a strong, established broker. That is crucial because reputable brokerage firms don't underwrite any company they come across, and vice versa is true.
#3 - Read the Prospectus
An IPO prospectus, commonly referred to as a Red Herring Prospectus, is a document that every company issues when they go public. It contains vital information like a company's history, fundamental operations, mission, and business model. A prospectus also tells potential investors how an organization plans to use its money and provides crucial financial information.
Before you purchase an IPO, read the company’s prospectus. It will help you understand the opportunity and assess all potential risks. Most importantly, it will enable you to determine how your money will be spent.
Remember, not all companies can put your investment to good use. Whereas some may use it to make excellent moves like expanding to other regions, a few may risk your finances through poor ventures like high-risk, speculative investments.
The Bottom Line
IPOs are often riskier for investors because they involve young, private companies and don’t give investors access to much-needed trading history. But if you play your cards well, you can reap significant returns from investing in IPOs. Just ensure that, before you commit, you have sufficient knowledge of stock market trading.
Last year, there was a record-breaking number of technology companies launching on the public market. According to GlobalData, tech IPOs were up by 26% globally, reaching 771 as the covid-19 pandemic triggered a major digital shift. Additionally, in the United Kingdom, there were even more flotations in the first half of 2021 than there were throughout 2020 as several leading tech startups, as well as other big-name brands, opted to list in the English capital with sky-high valuations. Amongst those making their debut were Darktrace, Dr Martens, Deliveroo, and Moonpig.
IPOs can be highly alluring to investors. Companies that go public are frequently in industries of significant interest to investors at the time and IPO companies tend to sell products that have rapidly become household names, with IPOs serving as a means of raising cash to sustain this rapid growth. However, despite their allure, IPOs are generally considered riskier investments. This is because they:
- Are generally young companies
Smaller companies experiencing rapid growth are typically the ones that decide to go public. Unfortunately for investors, these companies usually have limited operating histories, less experienced management teams, and a limited product range.
- Lack a stock-trading history
Because an IPO isn’t yet trading, it’s impossible to assess how the stock has behaved over the years before deciding to invest.
- They sell their shares first to large institutional investors
IPOs are generally first sold to large investors at the offering price while other investors are free to bid on those shares above or below the offering price once the stock begins trading.
In fact, recent analysis by online research platform Stockopedia suggests that the odds are rather heavily stacked against private investors when it comes to investing in new company IPOs.
Structural Bias Puts Private Investors At A Disadvantage
Stockopedia analysed thousands of data points for 258 IPOs listed in the UK between January 2016 and May 2021. The research platform’s new IPO Survival Guide shows structural bias in the current system that leaves private investors with the odds stacked against them. This is partly because, as mentioned, large pre-IPO purchases are marketed with institutional clients before a company is floated on the London Stock Exchange and this makes it close to impossible for private investors to purchase shares at the issue price. According to Stockopedia, 89% of IPOs open higher and, on top of this, the average price “pop” from the issue price to the first day opening price is nearly 10%.
Private Investors Can Lack Knowledge And Understanding
Stockopedia’s analysis draws attention to the uneven performance distribution of IPOs and where private investors can potentially gain, and lose, the most. On average, a timeframe of 3 to 6 months appears to be best for holding IPOs in the short term. However, in the long term, IPOs tend to perform poorly.
For the 258 UK IPOs studied, Stockopedia’s researchers found a negative median compound annual growth rate of -4.3% across five years. Small-cap IPOs that are typically under-researched and less anticipated by the market outperform mid and large-cap IPOs on nearly all metrics assessed. Throughout the last five years, the average performance of small caps sat at 85%, while large caps saw a negative performance of -20% one to two years after the IPO.
Interestingly, in a joint survey of 1,2000 private investors conducted by Stockopedia and Interactive Investor, 33% of respondents said they had or would invest at an IPO for long-term growth, while 23% said they would invest for medium-term growth. Just 16% of respondents said they would invest to make a short-term profit.
Although companies that float can vary widely, based on Stockopedia’s research, it appears that many private investors are putting their capital at risk through a lack of IPO knowledge and understanding.
Final Thoughts
While plenty of private investors have successfully bought into IPOs, it’s important for any private investor, new or old, to thoroughly research the risks involved and keep in mind that the odds are more heavily stacked against them as an individual.
“You’d want to be careful that you’re not just chasing a story or hype,” warns certified financial planner Douglas Boneparth in conversation with CNBC. “Don’t let excitement get in the way of making sure the investment you’re making is a smart one.”
This article does not constitute financial advice. The author and Universal Media Ltd. are not qualified financial advisers. All investments are made at the reader’s own risk.
Affirm Holdings
Affirm Holdings is a financial technology startup that enables consumers to purchase products and make payments in instalments. Investors interest in the company piqued in August when it entered into a partnership with Amazon. In October of this year, Affirm Holdings also partnered with American Airlines, the perfect time given 74% of Americans said they would spend "more on travel this holiday season than ever before”.
However, the stock dipped in early November after its largest client, Peloton Interactive, predicted underwhelming figures for the rest of the fiscal year, which deteriorated Peloton shares and agitated Affirm’s investors. Nonetheless, Affirm’s share prices have increased by 210% since its IPO in January.
DigitalOcean
DigitalOcean is a cloud computing service provider, providing infrastructure and tools for developers, startups, and SMBs. Since its IPO in March, shares have increased by 143% and the company’s Q3 revenue in 2021 increased by 37% to £83m, rather impressive given its three main competitors are Amazon, Google and Microsoft.
Looking towards the new year, the company is well-positioned to maintain its momentum in increased share price. It is predicted that by 2024 global spending on infrastructure and platform services will total £87bn and DigitalOcean believes that there are currently 100 million SMBs and 19 million developers worldwide that would benefit from their service, meaning it has the capability to expand its customer base exponentially.
GitLab
GitLab is an open-source code repository and collaborative software development platform for large DevOps and DevSecOps projects. On its first day of trading, shares of GitLab jumped 35% from its £57.7 share price to £78, and since then it has jumped further to 58%. This increase is largely down to its customer growth and retention. Customer count grew 32% since the start of the year to 3,632. While customers spending over £75,000 grew 35% to 383. In the first six months of 2021, the company made almost £81m in revenue, with almost £70.8m of that becoming gross profit.
Rivian
Rivian was one of the largest IPOs of 2021, raising £8.9bn. The company went public amidst growing market interest in electric vehicles. Popularity among EV vehicles has meant Rivian stocks have jumped 58% since its IPO in November and is expected to grow even further over the coming years. Currently, only 1% of all UK vehicles are made up by EV cars, yet by 2032 this is projected to jump to 55%, so it’s safe to say that EV vehicles are the future of transport.
TaskUs
TaskUs provides digital business outsourcing services to fast-growing technology companies to represent, protect and grow their brands, and the company provides technology to the likes of Facebook, Uber, Netflix and Zoom. Its success has been as a result of a multitude of factors but its increased presence within the food and ride-sharing industry has been intrinsic as the world opens back up.
TaskUs’s Q3 revenue for 2021 is £150m, representing 64.2% of year-over-year growth, which was entirely organic. Since its IPO in June, its shares have increased by 178%, and as a result of this success, it has managed to create offices in six locations including the USA, India, and Colombia with plans to further expand operations across the globe.
Doximity
Doximity is an online platform that enables medical professionals to collaborate with colleagues, securely coordinate patient care, conduct virtual patient appointments, and stay up to date with the latest medical news and research. Its clients include medical organisations, particularly pharmaceutical manufacturers, health systems, and medical recruiting companies.
With such a large user base on the platform, it should be no surprise that all 20 of the top pharmaceutical manufacturers advertise on Doximity, and the company made over £150m in revenue in 2020. Since its IPO in June, its stock price has increased by 195% and its revenue is estimated to be between £64.3m and £65.1m for the end of Q3 2021.
Looking to next year, instead of striving for a 100% market share of doctors and medical students in the US, the company could potentially expand internationally or into new professions like law or law enforcement - both areas where enhanced communication could improve the industry.
What does the future have in store for these organisations?
While it’s difficult to predict what will happen to these companies in 2022 and beyond, one thing is clear, they all provide services that are in high demand in their respective markets and offer unique products that rival even the largest companies. All six organisations have grown significantly since their IPOs and will continue to be ones to watch as we enter a new year.
Couchbase
Couchbase is a database software firm that helps corporate customers like eBay, Cisco Systems, Intuit, and PayPal Holdings manage databases on web and mobile application through its NoSQL cloud-based service. Founded in 2011, the company has registered for a stock market debut that is expected to come in June 2021.
Couchbase has seen strong growth over the past year, specifically since the start of the pandemic as demand for data storage and processing soared due to the adoption of remote working. Its growth has also meant it has had to enhance its portfolio. In June 2020, Couchbase debuted a managed version of its database that runs on Amazon Web Service. More recently, it is added support for Microsoft Azure.
Since its inception, the company has raised $251million in venture investments, with backers including GPI Capital, North Bridge Venture Partners and Accel. Its popularity among investors comes as no surprise with around a third of the Fortune 100 using its database to power their business applications.
Snowflake, a rival cloud-based data-warehousing company, went public last September, reaching a valuation of $33 billion, making it the largest software IPO in history. This means Couchbase’s IPO will be a pivotal moment in the company’s history and for the industry in general.
Robinhood
Founded in 2013, Robinhood offers commission-free trading through its website and mobile app, while also allowing users to buy and sell cryptocurrencies. The rise of the trading platform has been extraordinary. Between 2013 – 2020, the platform gained 13 million users, averaging a total of one million new users per year. However, in 2021, its user base skyrocketed with an additional 6 million users joining the trading platform in the first two months of the year.
The company’s recent growth in popularity has been down to young retail investors, predominantly millennials, who have taken a liking to the app’s slick user and customer experience. Its popularity isn’t just with young investors; a plethora of companies have also invested in the platform. In February 2021, Robinhood announced that it had raised a further $3.4 billion in an investment round featuring Ribbit Capital, ICONIQ Capital, Andreessen Horowitz, Sequoia, Index Ventures, and NEA.
However, while Robinhood has expanded rapidly over the last year, it hasn’t come without some public backlash and regulatory scrutiny. Regulators in Massachusetts are looking to ban its citizens from trading on the app, claiming that Robinhood’s gamified investing platform caused its customers to take on too much risk, thereby failing the state’s fiduciary rules.
Despite this, Robinhood generated $682 million in payment-for-order-flow revenue in 2020, which represents a 514% increase year-on-year. It’s reported that the company’s IPO valuation could be around $50 billion.
The Fresh Market
The Fresh Market is a retail chain that supplies high-quality food products. The grocer operates in many competitive South-eastern markets, with conventional grocers as well as speciality chains and discounters upgrading their assortment of natural and organic products. In March 2016, Fresh Market was acquired from Apollo Global, a private investment company, at $1.36 billion.
The company’s performance has improved in the years since Apollo Global Management took it private, and the pandemic has accelerated the chain’s rejuvenation and growth. As of late October 2020, Fresh Market had around $187 million in unrestricted cash and it recorded sales of $1.7 billion over the 12 months ending 25th October. The company also saw sales rise by an estimated 20% in 2020, which was for a range of factors including a change in pricing, investment in perishables, expansion of home deliveries, a pickup service, and a rise in pantry loading - as consumers increased transaction sizes while lowering the number of trips to the store during the COVID-19 pandemic.
The number of shares to be offered and the price range for the proposed offering have not yet been determined. However, Fresh Market expects to use the proceeds of the offering for general corporate purposes, which may include the repayment of indebtedness.
Databricks
Databricks is a startup company that provides software for fast data processing and analysis preparation and was founded in 2013 by the creators of Apache Spark, MLflow and Delta Lake.
2020 was a spectacular year for tech companies across the globe as many transitioned and migrated online – with Databricks also benefitting. The company claims to have passed $425 million in annual recurring revenue, a year-over-year growth of more than 75%. This is no surprise given that over 5,000 companies including CVS Health, Comcast, Condé Nast, Nationwide, and 40% of the Fortune 500 companies, currently rely on Databricks’ unified data platform for analytics, machine learning and data engineering.
Databricks’ future potential and expansion has not gone unnoticed with many prestigious and successful money managers and venture capitalists having already invested heavily in the company. Databricks has had seven major rounds of funding since its founding and has raised a total of $1.9 billion from a total of 28 investors. The company’s latest round of Series G late-stage venture financing raised a total of $1 billion from 23 investors. These investments are for good reason; powered on the cloud by Delta Lake, the Databricks Lakehouse platform allows companies of any size to efficiently consolidate all of their data in one place.
Databricks’ value during the IPO is not confirmed but it is speculated to reach $35 - $50 billion according to the Business Times.
Couchbase, Robinhood, The Fresh Market and Databricks are all key players within their respected sectors. While it’s important for an organisation to have the backing of investors and have a strong customer base, this doesn’t always mean their IPO will skyrocket, as we saw with the Deliveroo IPO. All four companies provide a unique offering that sets them apart from the competition and that’s why it’s worth keeping them on your radar for June.
Coinbase, the US’s largest cryptocurrency exchange, reached a valuation of over $100 billion on its first day of public trading on Wednesday.
The company was valued at $99.6 billion when trading opened, with stocks priced at $381 apiece. This price would later fall to $328.28, but not before reaching the $100 billion milestone.
Coinbase’s stock market debut, and the implications it creates for cryptocurrencies becoming part of mainstream finance, spurred enthusiasm among crypto investors. Bitcoin reached an all-time high of $63,000 on Tuesday ahead of the platform’s listing.
“Today is a big moment for @coinbase as we become a public company,” tweeted Coinbase co-founder and CEO Brian Armstrong on Wednesday. “But it’s also a big one for crypto.”
The value of Bitcoin and other cryptocurrencies has soared over the past year as major firms including Tesla, Mastercard and PayPal have revealed plans to incorporate digital tokens into their business models. Bitcoin itself rose 300% last year and has continued to climb since January.
Smaller currencies have also benefited from the surge. Joke token Dogecoin has risen over 70% in the past year, reaching 13 cents per coin.
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Coinbase was founded in 2012 and had more than 56 million users at the end of March 2021. It also held around $223 billion in users’ assets.
The firm’s market cap has increased more than tenfold since 2018, when investors in a private funding round valued it at $8 billion.
The value of Bitcoin hit a record $62,741 in early Tuesday trading, a surge of more than 4% in the past 24 hours.
This latest extension of the cryptocurrency’s 2021 rally comes one day ahead of the initial public offering of Coinbase, which is set to list on the Nasdaq index on 14 April.
Coinbase is the largest dedicated cryptocurrency trading platform in the US, with around 50 cryptocurrencies listed for exchange. It recently revealed that the number of active users on its platform reached 6.1 million, up from 2.8 million in the fourth quarter of 2020.
On Wednesday, Coinbase will become the first major crypto company to go public, with a valuation that may exceed $90 billion. It will not issue any new stares as part of its IPO, instead selling 114.9 million existing shares via a direct listing.
Cryptocurrency investors are hailing the firm’s IPO as a major step in the continued movement of virtual coins towards mainstream finance despite continued scepticism from regulators and major Wall Street players.
Crypto investors appear to have grown more bullish as the IPO approaches. Bitcoin remains the most highly valued cryptocurrency in the world, and the rest of the broader crypto market is often buoyed by its successes. Its second-place rival, Ethereum, also reached a record high of $2,205 in Tuesday trading.
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After a meteoric rise during 2020 and early 2021, buoyed by the attention of major players such as PayPal and Tesla, Bitcoin fell back as low as $43,000 in late February amid uncertainty over stimulus expectations and how they might affect US bond yields.
Now we’re a few months into 2021 and we’ve already seen some incredibly high-profile IPOs including Roblox, Bumble, Moonpig and Dr Martens. However, there are plenty more to come, and these are just some of this year’s most likely major offerings.
Deliveroo
Food delivery company Deliveroo is planning to list on the London Stock Exchange where it is expected to be valued at over £5bn. However, some outlets have reported that the valuation could be as much as £7bn, in which case, early investors in Deliveroo could make around a 60,000% return on their investment once it goes public. Stockbrokers can’t take part in the IPO, but private investors can do so through a £50m UK Deliveroo customer offer. This will occur through a third party called PrimaryBid where customers can initially invest up to £1,000.
Robinhood
Robinhood experienced record growth during the COVID-19 pandemic, attracting millions of locked-down Americans to its gamified trading app. It has been immensely successful since its inception and was valued at $40 billion in February 2021. However, it has been embroiled in plenty of controversies over the years, most recently the GameStop saga which resulted in its CEO Vladimir Tenev testifying before Congress. Robinhood is going public on the Nasdaq exchange, according to CNBC, though both organisations declined to comment.
Nextdoor
Some experts believe Nextdoor, the US-based social media service for neighbourhoods, has the potential to be the biggest IPO of 2021. It’s set itself apart from other platforms like Facebook and Twitter as location determines absolutely everything the app has to offer. The company reports that 1 in 4 American neighbourhoods use Nextdoor with users growing 80% month-on-month since the start of COVID-19 — the question is whether they can sustain once the pandemic ends. Nevertheless, Nextdoor has certainly established itself as a player in the social media landscape and is expecting a $4-5bn valuation.
Chime
Chime is an award-winning, American, online-only bank and is especially unique in that its users can get paid two days before their paychecks. It was the fastest-growing challenger FinTech bank of 2019 and has proven popular during the COVID-19 pandemic too. Towards the end of 2020, Chime even became EBITDA (Earnings Before Interest, Taxes, Debt and Amortization) positive, which is unusual for a startup in its early stages and is sure to make it highly sought-after once the IPO hits the market.
Darktrace
UK cybersecurity giant Darktrace is currently preparing to target a £4bn IPO, potentially making it one of the biggest London stock market debuts of 2021. The company has faced some challenges amidst its plans. Founding investor Mike Lynch is facing US extradition proceedings (though he is not involved in running the company), while Swiss bank UBS recently resigned as one of the lead investment banks on the IPO. However, earlier this month, Darktrace appointed former BT chief executive Sir Peter Bonfield to its board, while it has also been reported that they appointed former Capita executive Gordon Hurst as chairman to guide the company through its IPO preparations.
Wise
TransferWise rebranded as Wise in February 2021, with plans to offer a wider range of products ahead of a potential IPO bid. The British-based money transfer company was recently valued at $5bn by private investors last summer, though analysts believe it may be worth far more now. Wise has also been profitable for four consecutive years, while Sky News has reported that Goldman Sachs and Morgan Stanley will be leading the IPO of one of the UK’s most valuable tech companies ever.
Trustpilot
According to Bloomberg, Trustpilot’s IPO values the company at as much as £1.08bn, with trading scheduled to begin on the 23rd March on the London Stock Exchange. The consumer reviews service hosted 120 million reviews and saw revenue increase to $101.9m in 2020 — it makes money by selling subscriptions to businesses, allowing them to use reviews for marketing purposes and engage with customers on the platform. Trustpilot also narrowed its pre-tax losses in 2020, from $22.6m in 2019 to $12.9m last year.
PensionBee
UK online pension provider PensionBee recently brought forward its plans to list on the London Stock Exchange this year and, according to the Financial Times, has offered customers an opportunity to “register their interest” in its IPO. The company has attracted over 119,000 customers since its 2014 launch and reported a 77% increase in revenue to £6.3m in 2020. Founder Romina Savova told the publication that PensionBee had nearly doubled its users and assets under management every year since its launch and believed the company could continue to grow at a “high double-digit” given the “large” UK market available.
Syedur Rahman, partner at financial crime specialists Rahman Ravelli, assesses the growth in popularity – and the possible pitfalls – of special purpose acquisition companies.
In the normal way of doing things, a company is created, looks for business and does what it can to maximise its opportunities. At a certain stage in its development, it may decide it wishes to go public.
In practical terms, this means conducting an initial public offering (IPO), where shares in that private company are issued and made available to public investors. An audit is carried out to examine all aspects of the company’s finances, the business then prepares a registration statement to file with the appropriate exchange commission – such as the US Securities and Exchange Commission (SEC) or the UK’s Financial Conduct Authority (FCA) – and a stock exchange is approached to arrange the listing of an agreed number of shares at a certain price.
The IPO has been recognised as the way of going public for as long as any of us can remember. And yet it is coming under threat from the rise of the SPAC as the brash, new and popular kid on the block. The SPAC – which stands for special purpose acquisition company – has become an increasingly common way for a company to go from private to public in the US. Informed estimates say that around $64 billion in funding was raised via approximately 200 SPACs going public in 2020; a figure that is almost equal to the combined total of all IPOs that year.
The UK government is now set to examine a Treasury-backed review of the City that calls for company listing rules to be redrawn so that London can secure some of the rapidly-increasing SPAC business. It seems as if this side of the Atlantic may be set to enthusiastically embrace SPACs, which may not be surprising when it is considered that London has only been involved in 5% of the world’s IPOs in the last five years.
Supporters of SPACS believe they enable a private company to make the transition to a publicly-traded company in a way that offers more certainty over share prices and better control over the terms of the deal than are available by taking the traditional IPO route.
The UK government is now set to examine a Treasury-backed review of the City that calls for company listing rules to be redrawn so that London can secure some of the rapidly-increasing SPAC business.
In its simplest terms, a SPAC is created – also known as sponsored – by a team of large investors with the express aim of buying another company. When a SPAC’s sponsors then raise more money (via its own IPO), the subsequent investors do not know the target company that the SPAC is looking to acquire; hence SPACS often being referred to as “blank check companies’’. Once the SPAC has raised capital, it is held in an account until those running it identify a suitable private company that is seeking to go public through an acquisition. If and when such an acquisition is concluded, those who invested in the SPAC can swap their shares in it for shares of the acquired company or cash in their SPAC shares for what they paid plus accrued interest. Should a SPAC’s sponsors not find a suitable company to acquire within a set deadline – which tends to be two years after the SPAC’s IPO – it is liquidated and investors have their money returned.
It is a process that, on paper, appears straightforward. But there are inherent risks. The due diligence involved in the SPAC process is not as rigorous as a traditional IPO. It is a business model that allows sponsors to promote the SPAC (with other people’s money) in any way that they believe is appropriate. That in itself can lead to value destruction and the risks of “pump and dump”, where shares are bought low, these purchases are then heavily publicised and then the shares are sold when they reach what looks to be their high point.
There is also the risk of misleading statements and misleading impressions which, in the UK, are covered by sections 89 and 90 of the Financial Services Act 2012, respectively. It would also be appropriate to consider the risk of accounting fraud, as whether most SPACS have proper accounting controls or compliance has been the subject of some concern. After all, the initial stages of a SPAC’s creation only involves convincing a small number of individuals to invest, which enables the SPAC to avoid much regulatory scrutiny. This in itself should raise alarm bells in relation to investment fraud.
While SPACs clearly have their supporters, they certainly carry risk for investors. Such investment is as close to being a leap in the dark as possible – which can only make the risk if investment fraud a sizeable one. When investing in SPACs you are unable to review trading history and performance, as you can when investing in companies that have been listed in the markets for a significant period of time. There is a reliance on SPAC company statements and any reported news regarding them which, in effect, puts everything in the hands of its sponsors.
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If anyone believes they have been ripped off via a SPAC, an aggressive response is the only course of action. Preparing a bundle to the relevant regulators is an option, in order to pinpoint whether there have been any breaches of market integrity. The issues of investor protection and how the SPAC raised capital should be highlighted when taking such a step, as should any suspicions of insider dealing disclosure of information and other forms of market manipulation.
To determine if there has been any wrongdoing, any such allegations will have to be weighed up by the relevant regulator and / or enforcement agency in light of existing legislation. Yet any would-be investor would arguably be much better off if they spent time putting the SPAC under the microscope before they invested in it, rather than afterwards.
Recent history has demonstrated that successful tech industry stocks realise exponential growth and consistently outweigh other sectors. One only has to look at some of the largest and best-known companies in the world like Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN, Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) to understand that investing in the right technology at the right time will reap substantial returns.
The 2021 IPO season is offering some big names in technology, which will dominate again, but investors will also be looking at those companies that have flourished and will continue to do so, during the pandemic and after the pandemic. Indeed, because of COVID-19, health tech has moved inexorably to the front of the queue for many investors.
Here are our top five IPO tips for educated investors looking for long term windfalls in 2021.
Coinbase is not just a crypto firm, it is a full 360 FinTech story which handles payments, debit cards, trades and VC investments.
It is now a recognised brand with a strong following. Indeed, in the world of crypto, the “Coinbase effect” is fast becoming a colloquialism.
Coinbase is the most respected platform to access the crypto market. All coins listed there get an immediate and huge recognition by cryptocurrency adopters.
Blockchain technology is becoming institutional and besides the recent rise of Bitcoin, cryptocurrencies became an attractive asset class for many institutional investors, mostly in times when liquidity was lacking.
Coinbase offers a good option for investors to get exposure to the asset class. As investors are looking to enter the space, waiting to find the best fit, Coinbase sits at the hedge of retail and institutional clients. High margins and the huge potential of monetisation for its client base make it a definite company to add to investment portfolios.
Uipath is a global software company that develops a platform for robotic process automation and is one of the market leaders in its field.
The current COVID-19 pandemic has hastened the need for automation and has, in turn, brought a huge growth potential for Uipath. COVID-19 was the best challenge to test the company’s automation and its ability for remote working.
The company disclosed that it has over $400 million in annual recurring revenue, a metric that measures its predictable revenue from subscriptions and returning customers. This is music to the ears of investors as strong revenue, growth, having major clients (Uipath boasts 6300 clients worldwide) and diversity across industries are all hallmarks of a company with great potential.
In addition to this, Uipath is now a free cash flow positive company, which is a wonderful thing for a company in the tech sector. “We are on the verge of becoming free cash flow positive very soon, maybe even starting with this quarter, so we don’t need the money from an operational perspective. It was a strategic fundraise”, Co-founder Daniel Dines said, commenting on their recent fundraise.
Public markets are attracted to InsurTech stories (see the Lemonade example) and currently, there are not many listed players in the space. Oscar Health is a top player in the field, with more than 420,000 members across its individual, Medicare Advantage and small group products available in 15 states and 29 US markets.
Oscar positions itself as the first direct-to-consumer health insurance company, where the customer is at the centre of the value proposition. The company's Net Promoter Score is 36, which compares extremely favourably to the industry average of -12. App engagement and downloads are also way higher than industry standards.
The company has also increased partnerships with strategic players, such as their partnership with CIGNA, to provide commercial health solutions to small businesses.
Oscar also has an aggressive expansion plan to deploy its solutions in many other states in the US. In July this year, the company announced that it is expanding its health insurance products into four new states and 19 new markets to sell coverage for individuals and families in 2021.
Better is a company which has streamlined the mortgage process, eliminating fees and unnecessary steps in an attempt to provide people with a more efficient and easier way of buying a home. This has translated into the best rates available. By fully digitalising the process with full automation, it is destined for great things.
The mortgage market is increasing, and loans are in high demand due to the low-interest rates during the pandemic.
The company is focussing on diversity, single women, and minorities – in short, those who have not been served well by traditional banks historically.
Indigo Ag took the third spot on CNBC’s Disruptor 50 list. The $3.5 billion AgroTech company uses AI and machine learning technologies to advance the field of agronomics and contribute to healthier farms across the US.
Looking at the big picture, this is the right company, using the right technologies, in the right space, at the right time - with a combination of technology and sustainability. It is doing this by delivering value for growers and the environment while expanding consumer choice.
It is also disrupting the full value chain in one of the most traditional and archaic industries. It might be one of the first AgroTech companies attracting interest from ESG investment managers.
*NO INVESTMENT ADVICE - The content is for informational purposes only and should not be construed as financial advice. Nothing contained in this article constitutes a solicitation, recommendation, endorsement, or offer by Fiorenzo Manganiello or Nessim Sariel-Gaon or LIAN Group or any third-party service provider to buy or sell any securities or other financial instruments.
