Every so often, news about IPOs hits the mainstream and causes a big buzz. Recently, several well-know companies including Anthropic, SpaceX, and OpenAI have announced their intentions to pursue an IPO.

But many investors may be wondering the basic question: what is an “IPO”? Additionally, why do companies pursue it, and does Beacon Wealth participate in IPOs?

Let’s take a look at some frequently asked questions:

What is an IPO?

IPO stands for “initial public offering”. An IPO is the first time a private company offers its shares to the public on a stock exchange to raise capital and allow public trading. This event actually converts the private company into a public one, whereby the public can actually become owners by purchasing new shares on the stock market. An IPO also allows for selling shares and gives early private investors the opportunity to easily sell share on the stock market.

Why do companies go public through an IPO instead of just staying a private company?

One of the primary reasons is the ability to raise significant capital. For a company with plans for significant growth, an IPO can provide the large inflow of capital necessary to jumpstart rapid growth. Increased capital can also help pay down debt the company may have acquired. The transparency involved with being a public company can also help obtain more favorable borrowing terms in the future. Going public also gives founders, early investors, and employees a chance to realize gains on their investments by selling shares.

What is the process?

Private companies that go public are typically large, think $1 billion+ in private valuation. The process to hold an IPO requires a number of steps, many of which are designed to provide transparency to protect potential investors. It’s a bit complex, but here are the main steps.

• The company finds an investment bank to underwrite the deal and assist with valuation.
• The company undergoes audits and has to prepare numerous SEC filings.
• Becoming a public company also necessitates having a board of directors.
• This due diligence process is used to set the initial share prices.
• The company will also often engage in numerous public relations or marketing campaigns to generate interest in the IPO.
• Finally, on the IPO date, the shares are issued and sold.

Are IPOs a good investment?

First, bear in mind that it is often difficult for individual retail investors to buy shares in an IPO. For well-known companies, demand can be quite high, and most shares may be purchased by investment banks or institutional investors.

That aside, each IPO is different, and trying to guess how an upcoming IPO might perform compared to the past can be difficult. Sometimes the hype outweighs the actual interest, and the IPO falls flat. Other times, the demand can generate quick gains. The advertised IPO share price might not be what an investor actually pays by the time they can buy shares. Share prices can sometimes decline after lock-up or waiting periods end – allowing company officers to sell shares.

In short, IPO investing is volatile and carries heightened risk. With risk comes the opportunity for larger gains but also larger losses.

Does Beacon Wealth invest in IPOs?

Beacon Wealth generally avoids participating in IPOs because they often lack a sufficient operating and trading history to support a thorough, long-term investment analysis. IPO pricing can be driven more by short-term market sentiment and underwriting dynamics than by fundamental value, which may introduce additional volatility and uncertainty for clients. We also find it difficult to confidently determine whether newly public companies meet our faith-based screening criteria, given the limited disclosure and transparency available at the time of the offering.

Instead, we prioritize established securities where there is greater transparency, liquidity, and a more reliable track record. This discipline helps us focus on investments that align more closely with our long-term, risk-managed and faith-based investment approach.

IPOs and Biblical Stewardship

As a Christian, if you’re interested in investing in a company through an IPO, an important first step is to stop and examine your heart. Ask yourself the question “why do I want to invest through this IPO?”

Maybe the company is a “good” company offering products and services that actually contribute to the good of individuals and communities. Maybe the owners and board have a genuine desire to increase the public good and believe their products or services will truly benefit consumers in meaningful ways. You may be an investor who wants to help a company achieve those goals.

However, for many, an honest reflection will reveal a heart and mind caught up in the hype and a desire to make a quick profit. The Bible warns against this type of heart posture.

Consider 1 Timothy 6:10,

“For the love of money is a root of all kinds of evils. It is through this craving that some have wandered away from the faith and pierced themselves with many pangs.”

Or Proverbs 13:11,

“Wealth gained hastily will dwindle, but whoever gathers little by little will increase it.”

If your desire is to make a lot of money fast, let me challenge you: that is not faithful stewardship.

As stewards of the Lord’s resources, we are called to approach financial decisions with intentionality and care, mindful that our choices reflect our values. Scripture reminds us that God is concerned not only with outcomes, but with the posture of our hearts in how we manage what He has entrusted to us.

So that is an IPO in a nutshell! Remember that wise investing involves a faithful heart and mind, objectivity, a long-term perspective, and due diligence. We are honored to walk alongside investors as they seek to be wise stewards of their investments!