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IPOs are one of the most talked-about corners of the stock market. Every few months, a high-profile company goes public, and the story makes the news.

Lately, pre-IPO investing has joined the conversation too, as new platforms and funds have opened up access to private companies doing all sorts of innovative things in areas like space, science, and technology.

With all the hype around IPOs, it's easy to see why people tend to get excited about getting in on the action.

But what does the historical performance data show? And how can everyday investors participate?

And should you be investing in IPOs in the first place?

What an IPO Is

IPO stands for "initial public offering." It's the day a private company first sells its stock on a public exchange like the New York Stock Exchange or Nasdaq.

Before that day, only employees, founders, and professional investors can own shares. After it, anyone with a brokerage account can buy and sell them.

"Pre-IPO" refers to ownership in a company that hasn't gone public yet. Until recently, only large institutional investors and wealthy individuals could own private company shares.

New platforms and fund structures have changed that somewhat, though access still varies a lot by investor type.

Key difference: Public stocks can be bought and sold any time the market is open. Pre-IPO shares are typically illiquid, harder to value, and may carry restrictions on when they can be sold.

Why IPOs Attract Attention

There are several reasons IPOs generate so much interest:

• They offer a way to own a stake in a company at an earlier point in its public life.
• Some IPOs see significant price jumps on their first day of trading. The long-term historical average first-day gain across U.S. IPOs has been around 22%.
• A handful of IPOs over the years have produced very large long-term returns. Amazon, Google, and Nvidia all started as IPOs.
• They're often associated with new technologies or business models that aren't represented elsewhere in the broad market.

These potential opportunities can be compelling. They're also unevenly distributed, which is where the historical data becomes useful.

Important Dynamics to Understand

Who actually gets the first-day pop

When an IPO's price jumps on day one, that gain typically goes to institutional investors who received shares at the offer price set the night before trading begins.

Everyone else, including most retail investors, buys after the stock starts trading at its new, higher market price. The headline pop has already happened by then.

How IPOs have performed as a group

Academic research on IPOs goes back decades. One of the most-cited researchers in the field is Professor Jay Ritter at the University of Florida, who maintains an ongoing database of IPO performance.

His study of nearly 1,500 U.S. IPOs from 2012 through 2021 found that, over the three years after going public, they trailed comparable companies by roughly 16% to 19%.

More recent data shows a similar pattern. Here's how a widely tracked basket of recent U.S. IPOs compared to the S&P 500 over the past two years:

Total returns including dividends. IPO group represented by a widely tracked basket of recent U.S. IPOs.

In both 2024 and 2025, the IPO group returned roughly 9 to 12 percentage points less per year than the broader market. Individual IPOs varied widely.

Healthcare names averaged a gain of roughly 39% in 2025, while technology-sector IPOs averaged a loss of roughly 33%, but the group as a whole lagged.

Lockup periods

When a company goes public, the people who already own shares (employees and early investors) generally agree not to sell for a set period, usually 90 to 180 days. This is called a lockup.

When it ends, a large supply of insider shares becomes available to sell, and prices often drift lower around that date. Ritter's data suggests IPO underperformance tends to widen during the months right after lockup expiration.

Information differences

In an IPO, the people selling shares (founders, early investors, and the underwriting banks) know the company far better than the people buying. They've also chosen this particular moment to sell.

That doesn't mean the price is wrong, but it's a factor worth being aware of when evaluating any new listing.

Pre-IPO investing has additional considerations

Pre-IPO investing involves some dynamics that don't apply to public stocks:

• Illiquidity. Shares may be locked up for years and can carry transfer restrictions.
• Valuation opacity. Prices come from periodic funding rounds or lightly traded secondary markets rather than continuous public pricing.
• Fees. Pre-IPO funds and platforms commonly charge ongoing fees in the range of 2% to 3% per year, sometimes plus a percentage of profits.
• Outcome uncertainty. Not every private company goes public. Some get acquired at lower valuations, and some stay private indefinitely.

What the Long-Term Data Shows

Looking across decades of research, a few patterns show up consistently:

• As a group, IPOs have lagged comparable public companies over multi-year holding periods.
• Returns are highly skewed. A small number of large winners pull the averages up, while the typical IPO produces below-average results.
• IPOs that decline on their first day tend to keep underperforming. Of those "broken" IPOs in Ritter's data, roughly two out of three had negative three-year returns.

SPACs, an alternative IPO structure that became popular in 2020 and 2021, have shown weaker performance than traditional IPOs in academic studies. The median 2021 SPAC has lost more than 60% of its value.

Skewed outcomes: Long-term IPO returns tend to be driven by a small number of standout names. Identifying those names in advance is what makes IPO investing difficult.

Ways to Invest in IPOs and Pre-IPOs

There are several different paths to IPO and pre-IPO exposure. They vary in accessibility, cost, and how much liquidity they offer.

1. Direct IPO allocations through a broker

Some brokerages offer retail customers the chance to buy IPO shares at the offer price. Allocations are typically small (often 10 to 200 shares), come with account-size or trading-history requirements, and are most often available for deals where institutional demand was lighter.

2. Buying shares on the open market after listing

This is the most common path. Once an IPO begins trading, the stock can be bought through any standard brokerage account like any other stock.

The trade-off is that the first-day price increase has typically already occurred, and the lockup expiration period often follows.

3. IPO-focused ETFs

Several ETFs focus on recently public companies, offering diversified exposure across many IPOs without the need to select individual deals. They generally hold the largest and most liquid recent U.S. IPOs for a defined window (typically about the first three years of trading) before rotating them out.

Expense ratios in this category are usually a bit higher than broad-market index funds, often in the 0.55% to 0.65% range.

These ETFs address the access and diversification challenges. They also tend to track the performance of the IPO group as a whole, which historically has lagged the broader market.

4. Pre-IPO secondary marketplaces (accredited investors)

There are platforms that let qualified investors buy shares in late-stage private companies from existing shareholders, such as former employees.

To participate, U.S. investors generally need to qualify as accredited. This typically means income of at least $200,000 (or $300,000 with a spouse) or a net worth above $1 million (individually or jointly with a spouse/spousal equivalent), excluding the value of their primary residence.

Minimums vary by platform and product. Some platforms offer fund-style products starting around $10,000, while direct share purchases on other providers often start at $100,000, though some have lowered minimums for certain opportunities in recent years.

5. Pre-IPO funds available to all investors

A newer category of funds offers private-company exposure without the accredited-investor requirement. They generally come in two structures:

• Interval funds: these hold private companies in their portfolios and let investors buy in on an ongoing basis, but redemptions are only allowed during scheduled windows (often quarterly). Annual expenses tend to be high relative to public-market funds, sometimes in the 2% to 3% range.
• Listed closed-end funds: these also hold private companies but trade on an exchange like a stock, so they can be bought and sold any time the market is open. Because their share price is set by market demand rather than the fund's underlying value, the price can swing significantly above or below the actual worth of the holdings, sometimes resulting in substantial premiums or discounts of 20% to 30% or more during volatile periods.

6. SPACs

A SPAC (special purpose acquisition company) is a shell company that raises money through its own IPO and then searches for a private business to merge with. SPAC sponsors typically receive about 20% of the shares as compensation, which dilutes other shareholders.

The due diligence process for SPAC mergers also differs from a traditional IPO. Academic research has generally found weaker post-merger returns for SPACs than for conventional IPOs.

Putting It Together

IPOs and pre-IPO investing sit in a part of the market where the public narrative and the long-term data don't always line up.

The headlines tend to emphasize the standout winners and the first-day price moves. The research tends to emphasize the average outcome, which has historically trailed the broader market over multi-year periods.

Both pictures are true. IPOs do produce occasional large winners, and they're a legitimate part of the investing landscape. As a group, they have also tended to underperform comparable public companies and to carry additional risks, especially in their pre-IPO form, that don't apply to most other stocks.

Understanding both sides (the appeal and the data) can help you understand if investing in an IPO is right for you.

So, should I invest in an IPO?

If you're wondering if you should invest in an IPO, the answer, as always, is “it depends.”

Do you already have a plan in place that consists of well-diversified investments, a strong savings rate, and good risk management? If so, there may be nothing wrong with allocating a small percentage of your income or assets to a speculative opportunity with an IPO.

However, if you are seeing this as a quick way to get rich or a shortcut to outsized returns, you might end up disappointed.

Anything can happen, but be sure you are looking at IPOs objectively and keep your investment balanced along with the rest of your plan.

Frequently Asked Questions

Can a regular investor buy shares at the IPO offer price?

Sometimes, but not often. Most brokerages reserve their IPO allocations for larger or more active accounts, and the deals where retail allocations are widely available tend to be the ones where institutional demand was lighter.

Most individual investors end up buying after the stock begins trading, at whatever price the market sets.

How long is a typical IPO lockup, and what happens when it ends?

A lockup is the period during which existing shareholders (including employees, founders, and early investors) agree not to sell their shares. In the U.S., lockups typically run 90 to 180 days. When the lockup expires, those shareholders are free to sell.

The increased supply of shares hitting the market often coincides with downward price pressure, though the magnitude varies by company.

What does "accredited investor" mean?

It's a status defined by U.S. securities regulators that determines who can participate in certain private offerings. In general, individuals qualify by earning at least $200,000 per year (or $300,000 jointly with a spouse) for the past two years with the expectation of the same in the current year, or by having a net worth above $1 million excluding their primary residence.

Certain professional licenses also qualify. Many pre-IPO investments are limited to accredited investors.

If IPOs underperform on average, why do companies still go public?

Going public serves the company and its existing shareholders in ways that aren't reflected in post-IPO stock returns. It raises cash to grow the business, creates publicly traded shares that can be used for acquisitions and employee compensation, and allows early investors and employees to eventually sell their stakes.

The fact that IPOs have historically underperformed as an investment doesn't mean going public is a bad decision for the underlying business.

Are SPACs, direct listings, and traditional IPOs the same thing?

They are all ways for a private company to become publicly traded, but the mechanics differ. A traditional IPO involves underwriting banks pricing and distributing new shares before trading begins.

A direct listing skips the underwriting step and simply lets existing shares start trading on an exchange, with no new capital raised.

A SPAC is a publicly traded shell company that raises money first, then searches for a private business to merge with. Historical performance has varied across the three structures, with SPACs in particular tending to underperform traditional IPOs.

How are gains and losses from IPO shares taxed?

For most U.S. investors, shares purchased on the public market after listing are taxed like any other stock. Short-term capital gains rates apply if shares are held for a year or less, and long-term capital gains rates apply after that.

Pre-IPO shares and shares received as employee compensation can carry more complex tax treatment, including alternative minimum tax considerations in some cases.

Tax outcomes vary based on individual circumstances and are worth reviewing with a qualified tax professional.

Where can someone find out which companies are planning to IPO?

Companies that intend to go public in the U.S. file an S-1 registration statement with the Securities and Exchange Commission, which becomes publicly available through the SEC's EDGAR database.

Major financial news outlets also report on upcoming offerings, and several websites maintain calendars of expected IPO dates. An S-1 contains detailed information about the company's financials, risks, and intended use of proceeds.

Disclosures

This material is for educational and informational purposes only. It is not investment, tax, or legal advice and is not a recommendation to buy or sell any security. Investments in IPOs, pre-IPO companies, ETFs, interval funds, closed-end funds, SPACs, and private securities involve significant risks, including possible loss of principal, illiquidity, limited operating history, and price volatility. Past performance is not indicative of future results. Index returns shown are unmanaged, do not reflect fees, and cannot be invested in directly. Specific funds and platforms are mentioned for illustration only and are not recommendations. Investors should consult their financial advisor, tax professional, and any applicable offering documents before making investment decisions.