Hot Issue

Asset Financing

What is a burning problem?

A hot topic is a much sought after IPO. Before the offer, the company set up a hype, deserved or not, and decided to bring its actions to the public. With only a limited amount of stock available, and many investors wanting a piece of the stock, the IPO is drawing a lot of attention and further stoking fires from investor demand.

Understanding the burning issues

A company that has developed new and exciting technology, a biotechnology company with a promising drug in an advanced stage trial, a “sharing economy” company that is rapidly entering the markets – these can capture the imagination public investors awaiting a potential IPO. The gestation period of a company before its IPO can be short or long, depending on the preferences of the founders to cede some control and the first investors, including these founders, to experience their liquidity event.

Key points to remember

  • A hot topic is a much sought after initial public offering.
  • Biotechnology companies with promising drugs or high-tech companies with innovative products are often hot topics.
  • When only a limited number of shares are available and the share registers significant gains after its IPO, the buzz can still fuel fires in investor demand.
  • Some investors only participate in news broadcasts for quick short-term gains, while others participate in the long-term.

Sometimes, a company can remain private voluntarily or involuntarily, the latter case being able to be imposed on the company by unfavorable market conditions or changed business prospects. A fast-growing company may not be able to maintain its activities at levels that warrant an IPO. In addition, sometimes a private company is subscribed (acquired) before reaching the public equity market. But, when a company that investors are looking for finally reaches the IPO stage, its shares become a burning problem.

How Burning Problems Work

A widely followed company will first file an S-1 form for its planned IPO. Roadshows often follow, sponsored by the major subscriber (s), in which key executives give slides and answer questions from dozens of institutional investors as they digest roast chicken or grilled salmon lunches in a gym. High-end hotel meeting.

Convinced that this IPO will make big gains, investors communicate their orders to the investment bank (s) making the company public. Only a limited number of shares are offered, so that the IPO ends up being oversubscribed, which generally encourages the main subscriber to increase the listed price of the IPO or to convince the company to offer more of shares.

Finally, a hot issue will cost after the market close on the IPO date. The next day, the hot issue will be opened for trading on the stock exchange. Sometimes the stock price will jump 20%, 30%, 50% or more from the start and stay hot for a while.

In other cases, part of the volatility in the stocks of a news program is due in part to speculative investors who are trying to make a profit by buying and selling stocks, sometimes within seconds of the Initial Public Offering. These investors do not care about investing in the business for the long term, but only want quick business profits. This can cause a burning problem to see a lot of trading volume in the early days of the IPO, which then fades as the initial excitement subsides.

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