There is still money to be made in IPOs, but the focus has shifted from the quick buck to the long-term outlook. Rather than trying to capitalize on a stocks initial bounce, investors are more inclined to carefully scrutinize long-term prospects. Numerous companies in the past, including names like Webvan and Pets.com experienced huge first-day gains, but ended up disappointing investors in the long term during the dot-com bubble. No investment is a sure thing even if you have a longer-term focus, finding a good IPO is difficult. IPOs have many unique risks that make them different from the average stock which has been trading for a while.

Getting information on companies set to go public is hard. Unlike most publicly traded companies, private companies do not have analysts covering them, attempting to uncover possible cracks in their armor. Remember that although most companies try to fully disclose all information in their prospectus, it is still written by them and not by an unbiased third party. The Internet is the best place for information on the IPO and its competitors, financing, past press releases, as well as overall industry health. The information may be scarce; learning as much as you can about the company is a crucial step in making a sound investment. Your research may lead to the discovery that an IPOs prospects are being exaggerated and that not participating in the IPO is the best idea.

Select an IPO that has a strong underwriter. Generally, quality brokerages bring quality companies public. Exercise more caution when selecting smaller brokerages, because they may be eager to underwrite any company. Nonetheless, one positive of smaller brokers is that, because of their smaller client base, it may be easier for the individual investors to purchase pre-IPO shares. Usually at larger brokerages the only individual investors who get in on IPOs are long-standing, established high-net-worth customers. You should read the prospectus as it lays out the companys risks and opportunities, along with the proposed uses for the money raised by the IPO. For example, if the capital is going to repay loans, or buy the equity from founders or private investors, then watch out! It is a dreadful sign if the company cannot afford to repay its loans without issuing stock. Money that is going towards research, marketing or expanding into new markets paints a healthier picture. You can always request the prospectus from the broker bringing the company public.

The lock-up period is a legally binding contract is three to 24 months, between the underwriters and insiders of the company prohibiting them from selling any shares of stock for a specified period. Waiting until insiders are free to sell their shares is not a bad strategy, because if they continue to hold stock once the lock-up period has expired, it may be a signal that the company has a bright and sustainable future. A good company is still going to be a good company, and a worthy investment, even after the lock-up period expires. Remember that when it comes to dealing with the IPO market, an informed investor is likely to perform much better than one who is not.