Every few months a company goes public that has everybody fired up. You have been using the product for years. You love the brand. The hype machine is running at full speed. CNBC has it on every segment, your coworker won’t stop talking about it, and somewhere in the back of your head a little voice whispers: this is the one.
So you log into your brokerage account on IPO day, ready to get in on the ground floor.
There’s just one problem. You are not on the ground floor. You never were.
The first thing nobody tells you
When a company goes public, it sets an IPO price the night before trading begins. That’s the number that gets all the headlines. Airbnb priced at $68. Snowflake at $120. DoorDash at $102. Exciting stuff.
Here’s the part they don’t explain on the morning shows: that price is not for you.
That price goes to institutional investors: mutual funds, hedge funds, pension managers, the big Wall Street firms that were invited into the deal months ago. By the time the stock actually opens for trading and you can buy a single share, the price has already moved. A lot.
How much? Across the 21 biggest, most hyped IPOs of the last decade, the average opening price was 52% above the IPO price. That’s the real price retail investors pay to get in on day one.
Let that sink in. Before the stock has been public for five minutes, you are already paying a 52% premium over what the insiders paid the night before. You are not buying at the ground floor. You are buying at the penthouse.
A few examples from the data: Airbnb priced at $68 and opened at $146, a 115% premium before you could touch it. Snowflake priced at $120 and opened at $245, a 104% premium. Shake Shack priced at $21 and opened at $47, a 124% premium. Etsy priced at $16 and opened at $31, a 94% premium.
And yet people line up to buy. Every single time.
What happens after you buy
Here’s where it gets really painful. After paying that enormous premium just to get in, how do most of these names actually perform? Looking at those same 21 major IPOs from 2013 to 2024, measuring returns from the retail open price, the numbers tell a clear story.
On average, retail IPO buyers paid a 52% premium to get in the door, then lost 24% over the following twelve months.
The average 3 month return was just +9%, and that average is heavily distorted by a handful of outliers like GoPro’s short term sugar rush. The median is much worse. By six months the average was down 16%. By twelve months, down 24%. You paid a 52% premium to get in the door and lost nearly a quarter of your money in the first year.
The losers in this dataset are not small misses. Rivian opened at $106.75 and was down 77% twelve months later. Coinbase opened at $381 and dropped 61% in a year. Etsy opened at $31 and lost 72%. Robinhood, the app literally built on the premise of democratizing investing, opened at $38 and shed 68% of its value in the first twelve months of public trading.
The winners are real but rare. Reddit is up 155% from its open price twelve months later. Airbnb held its gains. But for every Reddit there are four Rivians.
Here is the full picture across all 21 IPOs.
IPO performance from retail open price
All returns measured from the first trade of the day, the earliest price retail investors could actually buy. Not the institutional IPO price.
| Company | IPO price | Open price | Premium paid | 3 months | 6 months | 12 months |
|---|---|---|---|---|---|---|
| 2013 | ||||||
| $26.00 | $45.10 | +73%retail paid up | +22% | −16% | −20% | |
| 2014 | ||||||
| GoPro | $24.00 | $31.34 | +31%retail paid up | +162% | +162% | +75% |
| Alibaba | $68.00 | $92.70 | +36%retail paid up | +11% | −12% | −27% |
| 2015 | ||||||
| Shake Shack | $21.00 | $47.00 | +124%retail paid up | +11% | +60% | +17% |
| Etsy | $16.00 | $31.00 | +94%retail paid up | −48% | −68% | −72% |
| Shopify | $17.00 | $28.00 | +65%retail paid up | +7% | flat | −7% |
| Fitbit | $20.00 | $30.40 | +52%retail paid up | +58% | −18% | −47% |
| Square | $9.00 | $11.20 | +24%retail paid up | −22% | −29% | −2% |
| 2017 | ||||||
| Snap | $17.00 | $24.00 | +41%retail paid up | −42% | −46% | −29% |
| 2018 | ||||||
| Dropbox | $21.00 | $29.00 | +38%retail paid up | +10% | −17% | −28% |
| Spotify | $132.00ref. price | $165.90 | +26%retail paid up | +8% | −22% | −19% |
| 2019 | ||||||
| Lyft | $72.00 | $87.24 | +21%retail paid up | −31% | −37% | −52% |
| Uber | $45.00 | $42.00 | −7%opened below IPO | −14% | −21% | −29% |
| 2020 | ||||||
| Snowflake | $120.00 | $245.00 | +104%retail paid up | +6% | +35% | +14% |
| DoorDash | $102.00 | $182.00 | +78%retail paid up | +21% | −19% | −34% |
| Airbnb | $68.00 | $146.00 | +115%retail paid up | +20% | +6% | +16% |
| 2021 | ||||||
| Coinbase | $250.00ref. price | $381.00 | +52%retail paid up | −41% | −47% | −61% |
| Robinhood | $38.00 | $38.00 | flatopened at IPO | +32% | −53% | −68% |
| Rivian | $78.00 | $106.75 | +37%retail paid up | −53% | −67% | −77% |
| 2023 | ||||||
| Instacart | $30.00 | $33.70 | +12%retail paid up | −35% | −41% | −26% |
| 2024 | ||||||
| $34.00 | $47.00 | +38%retail paid up | +38% | +72% | +155% | |
| Average (21 IPOs) | n/a | n/a | +52% | +9% | −16% | −24% |
All returns measured from retail open price. Spotify and Coinbase were direct listings; reference prices used. Approximate figures based on historical price records. Past performance does not reflect future results.
Why does this happen? The lockup you’ve never heard of
There’s a structural reason IPOs so often disappoint retail investors in that first year, and it has nothing to do with the quality of the business. It’s called the lockup period.
When a company goes public, insiders (founders, employees, early investors, private equity backers) are legally prohibited from selling their shares for a set period of time. Typically 90 to 180 days, sometimes longer. The logic is straightforward: if every insider dumped their stock the moment it hit the public market, the price would collapse immediately and retail investors would get crushed on day one.
So they wait. They have to.
But here’s what that means in practice. For the first three to six months after an IPO, the only people actually selling are a relatively small number of investors who got early allocations. The float, meaning the amount of stock available to trade, is artificially small. That creates the illusion of scarcity and often holds the price up better than the fundamentals would otherwise justify.
Then the lockup expires.
Suddenly millions of shares that have been sitting in the hands of employees and early backers become available to sell. And many of those people have been waiting a long time for this moment. They’ve been staring at a paper gain for years in some cases. The minute the window opens, a meaningful percentage of them sell. That selling pressure hits the stock, often hard, and the retail investor who bought at the opening price on day one watches the value of their shares erode just as those insiders are finally cashing out.
It’s not illegal. It’s not even immoral. It’s just the way the game is structured. And retail investors are the last to know the rules.
An IPO today is not your grandfather’s IPO
This is the part of the conversation I think matters most, and almost nobody talks about it.
There was a time when an Initial Public Offering was exactly what it sounds like. A company needed capital to grow. It had a real business, often profitable, and it came to the public markets to raise money that would fund expansion, hire people, build infrastructure, and create value for the shareholders who came along for the ride. The public was invited into something early, with genuine upside ahead.
That model still exists, but it is increasingly the exception rather than the rule.
Today’s IPO market has largely become something different: an exit mechanism for insiders.
Think about how most major companies are built now. A startup raises venture capital. Then more venture capital. Then it raises a monster private round from a private equity firm or a sovereign wealth fund at a valuation of $10 or $20 or $50 billion. The employees have been issued stock options that are worth a fortune on paper. The PE firm has been holding this company for five or seven years and needs a return for its own investors.
All of those people need liquidity. They need to convert paper wealth into real money. And the mechanism for doing that, more often than not, is the IPO.
So when Rivian goes public at an $87 billion valuation, larger than Ford at the time, the question isn’t just “do you believe in electric trucks?” The question is: who is selling you those shares, and why are they selling right now?
The answer, almost always, is that the people who know the most about the company have decided this is a good time for them to exit. They’ve been inside for years. They’ve watched the business up close. They know the competitive landscape, the unit economics, the challenges ahead. And they’ve decided that the best thing for them is to convert their ownership into your cash.
That’s not a reason to never buy an IPO. It’s a reason to think very carefully about what you are actually doing when you do.
The original purpose of the public markets was to connect businesses that needed growth capital with investors who wanted to participate in that growth. What we have today, in many high profile cases, is essentially the opposite: a mechanism for distributing risk from sophisticated insiders to retail investors who are late to the party and paying above market prices to get in.
So what should you actually do?
Wait.
Seriously. Just wait.
The data on this is overwhelming. The majority of hyped IPOs trade lower 6 to 12 months after they go public. Lockup expirations create predictable selling pressure. The initial excitement fades. The business has to start performing, and often it doesn’t perform as well as the hype going into the IPO suggested it would.
For most retail investors, the best move with a hot IPO is to put it on your watchlist, not in your portfolio. Watch how management talks about the business on the first few earnings calls. See how the stock behaves when the lockup expires. Let the insiders finish selling. Let the dust settle.
If the business is genuinely great, it will still be a great business in 12 months. Shopify opened at $28 in 2015. If you had completely ignored the IPO and bought it a year later at roughly the same price, you would have made one of the best investments of your life. Square opened at $11.20 and was a mess for its entire first year, but if you bought it patiently after that year of chaos, you did extraordinarily well.
Patience isn’t sexy. It doesn’t make for a good CNBC segment. Nobody texts their friends to say “I waited 14 months and then bought that stock at a much better price.” But that, far more often than not, is exactly the right move.
The house has all the advantages on IPO day. The institutional allocation. The information asymmetry. The lockup that keeps insiders from selling until after you’ve already bought. The ability to flip shares before the hype fades.
You don’t have to play their game. And usually, the best decision you can make is not to.
Data sourced from historical IPO records 2013 to 2024. Returns measured from retail open price, the first price available to public investors, not the institutional IPO price. Spotify and Coinbase were direct listings; reference prices used. Past performance does not reflect future results. This is not investment advice.
