Recently, I’ve seen many people in the community asking what an IPO is. Actually, that’s a good question because many investors’ understanding of IPOs still stays at a superficial level.

IPO stands for Initial Public Offering, which in Chinese is called first public offering. Simply put, it’s the process of a private company deciding to sell its stock to the public, thereby becoming a listed company. Why do companies do this? It’s straightforward: founders’ investments are limited, and to continue growing, a company needs to raise funds. An IPO is the ultimate form of fundraising. Through an IPO, the company can raise a large amount of capital, and investors can also gain liquidity—everyone benefits.

The IPO process for Hong Kong stocks and U.S. stocks is actually quite similar, but there are some differences in details. In Hong Kong, the company needs to find sponsors, accountants, lawyers, and other intermediary institutions, then conduct due diligence and audits before submitting an application to the Stock Exchange of Hong Kong. The process in the U.S. is similar, but it requires submitting a registration statement to the SEC and conducting a nationwide roadshow to attract investors.

Regarding listing requirements, the main board of Hong Kong is relatively flexible. Basically, you need to meet any one of three conditions: profitability, market capitalization, or cash flow. For example, recent profits of at least HKD 20 million in the past year, or a market value of at least HKD 4 billion at the time of listing, and so on. In the U.S., it’s more complicated. The requirements for the NYSE and NASDAQ differ, but the core factors are still profitability, cash flow, and market value.

So, is investing in IPO new shares worth it? My view is that there are indeed opportunities, but you also need to be aware of the risks. The advantages are clear: first, IPO prices are usually the cheapest, and if you miss out, you might never get the chance to buy at that price again. Second, most companies choose to launch IPOs during a bull market, which means a higher probability of stock price appreciation. Another point is information symmetry: all investors can only learn about the company through the prospectus, and large institutions don’t have more information than retail investors.

But risks shouldn’t be ignored either. Some companies, even after IPO, may not have solid fundamentals. Large funds may quickly exit, making it hard for retail investors to keep up. Additionally, all positive factors for the company might have already been priced in before the IPO, which can limit your short-term gains.

For those interested in participating in IPO investments, my advice is to first understand the company’s fundamentals—check whether its financial health is genuine and solid, and don’t be driven solely by short-term FOMO. Also, diversify your investments and don’t put all your chips into a single new stock. IPOs can indeed be profitable opportunities, but only if you make rational judgments rather than blindly following the crowd.