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High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders, 3rd Edition


"Helping investors understand the risk and rewards of an IPO and apply their own due diligence is what this third edition of Tom Taulli's High-Profit IPO Strategies is all about."
—Zach Nelson, CEO, NetSuite Inc.

IPOs provide exciting and potentially lucrative investment opportunities by anyone's standards—but in order to benefit from them, you must have a firm understanding of a variety of issues associated with them.

That's why author Tom Taulli—an IPO expert involved in the financial markets for over fifteen years—has returned with the Third Edition of High-Profit IPO Strategies. Fully updated and expanded to reflect today's dynamic IPO market, this reliable resource outlines the strategies you'll need to succeed within it and offers valuable insights on developing the patience and discipline to effectively navigate the uncertainties that come with the territory. Divided into four informative parts, this book covers everything from the IPO process and how to get shares, to the various sectors of the IPO market, specific trading strategies, and specialized transactions, such as spin-offs.

The IPO market remains a great place to find tremendous investment opportunities. High-Profit IPO Strategies, Third Edition, will show you what it takes to successfully operate in this arena and put you in the best position possible to excel at such a demanding endeavor.

TOM TAULLI writes about venture capital and IPOs for as well as the He has been involved in the financial markets since the mid-1990s when he launched WebIPO. It was a place where investors could go for research and access to deals during the dot-com boom. He has written several books, including Investing in IPOs, Investing in IPOs Version 2.0, The Complete M&A Handbook, All About Short Selling, and All About Commodities. Besides his writings, Taulli is routinely quoted in the media about upcoming deals with his interviews on CNBC and Bloomberg TV. He can be reached at or on Twitter at @ttaulli.

Foreword xiii

Introduction xv


CHAPTER 1 Getting IPO Shares 3

Risk 4

The Calendar 4

Online Brokers 5

Build Relationships with the Syndicate Firms 8

Dutch Auction 8

Buy on Secondary Markets 10

Private Placements 10

IPO Mutual Funds 10

Directed Share Program 11

Follow-On Off erings 11

Direct Public Off erings 12

IPOs to Avoid 13

Conclusion 14

CHAPTER 2 IPO Basics 15

Why Do Companies Go Public? 15

Reasons Not to Go Public 19

JOBS Act 23

Cast of Characters 23

Conclusion 27

References 27

CHAPTER 3 IPO Process 29

Laws That Impact IPOs 29

Steps of the IPO Process 30

Conclusion 38


CHAPTER 4 Finding the Best IPO Information 41

Information to Get Your Feet Wet 42

In-Depth IPO Information 43

Other IPO Information Resources 45

Conclusion 47

CHAPTER 5 Making Sense of the Prospectus 49

Getting a Copy of the Prospectus 50

Main Sections 50

Front Matter 52

Graphic Material 54

Qualification Requirements 55

Prospectus Summary 56

Risk Factors 58

Letter from Our Founder 59

Market Data and User Metrics 60

Use of Proceeds 60

Dividend Policy 61

Capitalization 61

Dilution 62

Selected Consolidated Financial Data 62

Management’s Discussion and Analysis of Financial Condition and Results of Operations 62

Business 63

Management 63

Executive Compensation 64

Certain Relationships and Related-Person Transactions 65

Principal and Selling Stockholders 65

Description of Capital Stock 66

Shares Eligible for Future Sale 66

Index to Consolidated Financial Statements 67

Miscellaneous Sections 67

Conclusion 67

CHAPTER 6 Balance Sheet 69

Some Fundamentals 69

Balance Sheet Overview 71

The Assets 73

The Liabilities 78

Conclusion 81

CHAPTER 7 Income Statement 83

Management’s Discussion and Analysis of Financial Condition and Results of Operations 84

Conclusion 91

CHAPTER 8 Statement of Cash Flows 93

Background 93

Focus on Operating Cash Flows 96

Free Cash Flow 97

Stock Options 98

Factoring 98

Footnotes 98

Fraud and Misrepresentation 99

Conclusion 100

CHAPTER 9 Risk Factors 101

Inexperienced Management Team 101

Need for More Financing 102

Legal Proceedings 103

Market and Customer Base 104

Going Concern 104

Competition 105

Dual-Share Structure 106

CEO Dependence 107

Reliance on the Government 108

Unproven Business Model 109

Limited History of Profi table Operations 109

Small Market Potential 110

Cyclical Businesses 111

Conclusion 111

CHAPTER 10 IPO Investment Strategies 113

Neighborhood Investing 113

Invest in What You Know 114

Study Mutual Fund Holdings 114

Strong Backers 115

Analyst Coverage 115

IPO Rules of Thumb 116

Buy on the Opening or Wait for the Lockup to Expire? 117

Buying on Margin 118

Options 118

Conclusion 122

CHAPTER 11 Short Selling IPOs 123

How Short Selling Works 123

Risks of Short Selling 126

Taxes 127

Finding IPOs to Short 127

Conclusion 128


CHAPTER 12 Tech IPOs 131

The Cloud 131

Social Networking 133

Mobile 135

Marketplaces 136

Security 136

Big Data 137

Evaluating a Tech IPO 138

Conclusion 140

Reference 140

CHAPTER 13 Biotech IPOs 141

FDA Approval 143

Analyzing Biotech IPOs 144

Conclusion 147

References 148

CHAPTER 14 Finance Sector IPOs 149

Banking 149

Asset Managers 152

Private Equity Firms 153

Online Brokerages 154

Insurance 155

Specialized Online Financial Services 156

Conclusion 157

References 158

CHAPTER 15 Retail Sector IPOs 159

Brand 159

Disruptive Threats 160

Major Consumer Changes 161

Timing 161

Check Out the Store 162

Financial Metrics 163

Narrow Base 163

Conclusion 164

References 164

CHAPTER 16 Foreign IPOs 165

Advantages of Foreign IPOs 166

Risks 167

IPO Process for Foreign Deals 170

American Depositary Receipts 171

Direct Investments in Foreign IPOs 171

Conclusion 172

CHAPTER 17 Energy IPOs 175

Crude Oil 175

Natural Gas 176

Coal 177

Alternative Energy 177

Types of Energy Companies 179

Evaluating an Energy Company IPO 179

Master Limited Partnerships 180

Conclusion 181


Trends in the Real Estate Market 183

Basics of REITs 184

Conclusion 188


CHAPTER 19 IPO Funds 191

Types of Funds 191

Mutual Funds 192

Exchange-Traded Funds 194

Closed-End Funds 195

Hedge Funds 197

Fund Strategies 198

Conclusion 200

References 200

CHAPTER 20 Spin-Offs 201

The Basics 201

Investing in Spin-Offs 204

Conclusion 205

References 205

CHAPTER 21 Fad IPOs 207

Spotting the Fads 208

Knowing When to Get Out of Fad IPOs 212

Conclusion 212

References 213

CHAPTER 22 Secondary Markets, Angel Investing, and Crowd Funding 215

Pre-IPO Funding Process 216

Accredited Investor 216

How to Become an Angel Investor 217

Angel Deal Structures 217

Strategies for Angel Investing 218

Due Diligence and the Term Sheet 221

Secondary Markets 223

Crowd Funding 226

Conclusion 228

CHAPTER 23 The 100x IPO 229

The IPO 229

Conclusion 233

Conclusion 235

Appendix A: The Underwriting Process 239

Appendix B: Analyzing the Financial Statement Items 243

Glossary 247

About the Author 259

Index 261