Want to make money from new stock IPOs? First, understand what IPO means and the ins and outs of going public.

What exactly is an IPO? Explained in one sentence

You often hear the term “IPO” in financial news, but many people don’t really know what it stands for. IPO stands for Initial Public Offering, which in Chinese means “首次公開發行.” Simply put, it’s the process by which a private company decides to sell shares to the public and become a listed company.

Why do companies go public? After a company has grown to a certain stage supported by founders’ funds and early investors, these funds are no longer enough. To continue expanding, explore new markets, and develop new products, they need to raise more external capital. At this point, going public becomes the best option—raising funds through an IPO while allowing early investors to cash out or diversify their risks.

Transitioning from private to public is not just a change in financing methods but also a shift in ownership structure. Shareholders can sell all or part of their shares to create liquidity, and the public gains the opportunity to buy shares of quality companies. For the company itself, an IPO helps repay debt, enhance brand image, and inject momentum for future development.

How difficult is it to list on the US stock market? Let’s look at NASDAQ and NYSE requirements

The US has two main stock exchanges: the New York Stock Exchange (NYSE) and NASDAQ, each with different requirements.

NYSE’s stricter criteria:

• Pre-tax profits (excluding extraordinary items) of at least $100 million over the past 3 fiscal years, with at least $25 million in the last 2 years
• Or a global market capitalization of over $500 million, annual revenue over $100 million in the past 12 months, cumulative cash flow over $100 million in 3 years, and cash flow of at least $25 million in each of the last 2 years
• Or a market cap of $750 million, with annual revenue of at least $75 million in the last 2 years

NASDAQ’s somewhat more lenient standards (example for national market):

• Either positive pre-tax earnings of $1 million in any 2 of the last 3 years, with shareholders’ equity over $15 million, public market value over $8 million, and at least 3 market makers
• Or shareholders’ equity over $30 million, with at least 2 years of operation, public market value over $18 million, and at least 3 market makers
• Or a listed securities market value over $75 million, public market value over $20 million, and at least 4 market makers
• Or total assets and revenue of $75 million in any 2 of the last 3 years, with public market value over $20 million and at least 4 market makers

Hong Kong IPO process explained: How long does it take from preparation to listing?

The Hong Kong listing process is relatively complex and generally involves the following steps:

Step 1: Building the team
Companies need to select investment banks, accountants, lawyers, and valuation firms to form the “listing team,” with the sponsor being the most critical.

Step 2: In-depth investigation and audit
The intermediaries conduct comprehensive due diligence on the company’s business, assets, and equity, and audit financial statements. This process involves preparing detailed schedules, prospectuses, and legal opinions.

Step 3: Corporate restructuring and governance
Many companies reorganize their business or equity structure and adjust corporate governance to meet listing requirements.

Step 4: Submission of application
Companies submit their application documents to the China Securities Regulatory Commission (CSRC) and the Hong Kong Stock Exchange (HKEX). HKEX will publish the prospectus on its website, and during this period, they may respond to multiple rounds of questions from regulators.

Step 5: Roadshow and pricing
Prepare roadshow materials, conduct non-deal roadshows and investor meetings, including international roadshows, and finally set a reasonable IPO price based on market feedback.

Step 6: Official listing
After pricing is finalized, the company conducts the Hong Kong IPO, and shares begin trading on HKEX.

Hong Kong’s listing requirements for financials are also strict. Main board companies must meet any one of the following:

• Profit of over HKD 20 million in the last year, cumulative profit over HKD 30 million in the previous two years, and profit of HKD 500 million at listing
• Market capitalization of HKD 4 billion at listing, with revenue over HKD 500 million in the last year
• Market capitalization of HKD 2 billion at listing, with revenue over HKD 500 million in the last year, and total operating cash flow over HKD 100 million in the past 3 years

US IPO process: Six steps to Wall Street

The US IPO process is similar to Hong Kong’s but also has differences:

Step 1: Hire an investment bank
Companies need to find underwriters or an underwriting syndicate to lead the IPO process.

Step 2: Register with the SEC
Together with underwriters, companies submit registration statements including financial data, business plans, and use of proceeds.

Step 3: Roadshow period
Before the IPO, about two weeks are spent conducting roadshows across the country to introduce the company’s prospects to potential investors.

Step 4: Pricing
Based on feedback from the roadshow and market conditions, the company sets the IPO price and decides on the exchange.

Step 5: SEC approval and offering
Once the SEC declares the registration effective, the company releases the prospectus and application forms to the public, announcing the exact IPO date.

Step 6: Trading begins
After the final price is set, underwriters and the company allocate shares to investors, and trading on the stock exchange commences.

Are IPO new shares worth investing in? Balancing gains and risks

Many investors are eager for IPO new shares, but few actually profit from them. Let’s look at what aspects of IPO investing are worth paying attention to and what pitfalls to avoid.

Three main attractions of investing in IPOs:

1. Low cost
   Many quality companies are only accessible to institutional investors before listing, and retail investors can’t buy them. Once a company goes public, retail investors have the chance to buy at the initial offering price (usually the cheapest). If you believe in a company’s growth potential, IPO prices are often the best entry point. Missing it might mean paying a much higher price later as the stock surges.

2. Potential returns
   Most companies launch IPOs during bull markets, which already indicate market optimism. Plus, quality companies are listed at relatively low prices, offering greater profit potential for investors.

3. Information symmetry
   All investors (including institutions and retail) mainly rely on the prospectus for company information—no one can get insider info ahead of time. In this regard, large institutional investors do not have an advantage over retail investors.

But IPO investing also carries significant risks:

• Speculative risk
  Not all listed companies are good investments. If you pick a “bad company,” even if it successfully lists, when big institutional investors and cash-rich funds start selling, retail investors may not react quickly enough and could be forced to buy at a loss.

• Valuation risk
  Pre-IPO, all positive news is already priced in. This means the stock’s upside potential after listing may be limited, and short-term gains are often overestimated. Many new stocks tend to plunge within days of listing for this reason.

• Liquidity risk
  IPO shares often have lock-up periods during which major shareholders and executives cannot sell. When the lock-up expires, a large number of shareholders may sell simultaneously, putting downward pressure on the stock price.

How should Taiwanese investors approach IPOs? Be cautious but smart

For Taiwanese investors, participating in IPOs can bring good returns, but it requires rationality and caution.

Many Taiwanese investors prefer local IPO opportunities because they are more familiar with domestic companies’ development and can make better judgments. They tend to favor stable investments and avoid high risks. When choosing IPOs, they usually select companies with solid fundamentals and clear financials.

Preparation is key. Don’t follow the crowd just because a stock is rising. Deeply analyze the company’s fundamentals, competitive advantages, financial health, and industry outlook. Carefully read the prospectus, especially the risk disclosures.

Avoid chasing after the first-day surge. IPO markets are volatile; initial days often see multiple times gains, but buying at that point is risky. A smarter approach is to wait for a price correction or participate after one or two weeks of trading.

Finally, remember the principles of diversification and long-term holding. Don’t put all your funds into a single new stock. Allocate according to your risk tolerance, and focus on the company’s long-term prospects rather than short-term fluctuations.

In summary, IPO investing is neither a guaranteed win nor a guaranteed loss. The key is to analyze rationally, make cautious decisions, and adapt strategies flexibly based on market conditions. For Taiwanese investors new to this field, understanding the meaning of IPO and the listing process thoroughly, then researching specific investment opportunities carefully, is the right way to start.