Want to participate in IPO investments? First, understand what IPO is and how the listing requirements differ between Hong Kong stocks and US stocks.

What is an IPO? Why do companies go public?

Startups rely on financing to go from 0 to 1, but moving from 1 to 100 requires even larger capital support. As the funding ceiling for private companies approaches, founders and investors face a choice: should they take the company public? This is the true background of an IPO.

The full name of IPO is Initial Public Offering, which simply means a private company’s first issuance of shares to the public, becoming a listed company. What does this transition imply? Ownership disperses from a few to millions of investors, existing private shareholders can cash out, and new investors gain entry to the company.

For companies, an IPO is more than just raising money. Through listing, a company can:

• Raise large amounts of capital for expansion or debt repayment
• Enhance brand visibility through the public market
• Use stock as an incentive tool to attract top talent
• Create a monetary foundation for future mergers and acquisitions

For investors, an IPO is an opportunity to participate in the growth of high-quality companies—if they pick the right company and invest from the first day of listing, they often enjoy the lowest entry price.

What are the differences between Hong Kong IPOs and US IPOs?

Both markets are top global exchanges, but their listing thresholds, review processes, and investment rules differ significantly.

Hong Kong IPO process and conditions

The steps for listing in Hong Kong are relatively standardized:

Step 1: Find intermediaries. Assemble a team of sponsors, accountants, lawyers, valuation experts, etc., similar to organizing a large project.

Step 2: Due diligence. Intermediaries conduct a comprehensive review of the company’s finances, operations, and compliance. This process often takes 3-6 months. Simultaneously, prepare the prospectus, which shapes investors’ first impression of the company.

Step 3: Restructuring and financing. Some companies may need to adjust their equity structure or bring in strategic investors to meet listing requirements.

Step 4: Application review. Submit the application to the SFC and HKEX. After approval, proceed to the roadshow phase.

Step 5: Pricing and issuance. Finalize IPO price and listing date through meetings with institutional investors and international roadshows.

The Main Board’s listing conditions are relatively lenient, and satisfying any one of the following is sufficient:

• Profit ≥ HKD 20 million in the most recent year, cumulative profit ≥ HKD 30 million in the previous two years, and profit ≥ HKD 500 million at listing
• Market cap ≥ HKD 40 billion and recent year’s revenue ≥ HKD 5 billion
• Market cap ≥ HKD 20 billion, recent year’s revenue ≥ HKD 5 billion, and cash flow from operations in the past 3 years ≥ HKD 1 billion

US IPO process and conditions

The US IPO process appears similar but has intricate details:

Step 1: Hire investment banks. US companies need underwriters and investment banking teams to play the role of “deal managers” throughout the IPO.

Step 2: Submit registration statement to the SEC. This document includes financial data, business plans, use of proceeds, etc. The SEC will review and ask questions repeatedly, requiring responses. This stage may take 2-4 months.

Step 3: Roadshow. In the two weeks before the IPO, management travels across major US cities to pitch to institutional investors.

Step 4: Pricing and book-building. Based on feedback from the roadshow, determine the IPO price and the exchange for listing.

Step 5: Distribute the prospectus to the public. After SEC declares registration effective, the IPO officially begins.

Requirements vary by exchange. NYSE (New York Stock Exchange) has higher thresholds:

• Total pre-tax profit ≥ USD 100 million over the past 3 fiscal years, with each year ≥ USD 25 million; or
• Global market cap ≥ USD 500 million, revenue in the past 12 months ≥ USD 100 million, cash flow in the past 3 years ≥ USD 100 million, and each of the last 2 years ≥ USD 25 million; or
• Market cap ≥ USD 750 million, and revenue in the past 2 years ≥ USD 75 million

NASDAQ (Nasdaq) is more flexible, allowing loss-making companies to list as long as market cap and shareholder equity meet requirements. This is why many high-growth, unprofitable tech companies choose Nasdaq for listing.

Comparison: Hong Kong vs. US

Are IPO new shares worth investing in? Three advantages and two major risks

Why are some investors enthusiastic about IPOs?

Advantage 1: The lowest entry price

The IPO price of a high-quality company is usually the lowest in history. Why? Because issuers deliberately set a low price to ensure successful subscription and give early investors a “discount” as a reward. Missing out on an IPO means missing the lowest price; later, buying in will cost more. It’s like queuing for concert tickets—the earliest in line get the cheapest tickets.

Advantage 2: Probability advantage

Most companies choose to launch IPOs during bull markets or favorable market windows. What does this mean? The probability of the stock price rising after listing is higher. Plus, with the growth potential of quality companies, buying at IPO price often yields profits within days or weeks of listing.

Advantage 3: Information symmetry

Before IPO, all investors access information through the prospectus. Large institutional investors do not have more insider information than retail investors. This “information equality” does not exist in the secondary market—big institutions always find ways to get information first.

Risk 1: The trap of hype and speculation

Not all IPOs are profitable. Some companies pass the listing review but their business models or growth prospects are not as rosy as promoted. Worse, when large institutions start cashing out, retail investors often react slowly and end up as “bagholders.”

Risk 2: Pricing already reflects all positive news

The positive news companies promote before IPO is already embedded in the listing price. This means it’s hard to see “surprise” boosts afterward, and short-term gains may be smaller than expected. If negative news emerges, the stock price can plummet rapidly.

Practical advice for investors

Before participating in IPOs, investors should ask themselves:

1. Do I really understand this company? Don’t follow blindly; study the financials, business structure, and competitive landscape in the prospectus.

2. What is the industry outlook? A great company in a declining industry won’t have a bright future.

3. How much loss can I tolerate? IPO stocks are volatile. Be mentally prepared and avoid using living expenses for IPO investments.

4. What is my investment horizon? If you want quick profits, IPO may not suit you. If you’re willing to hold long-term, IPO prices are often the best entry point.

5. Have I managed risks properly? Don’t put all funds into a new stock; diversify to reduce single-point risk.

Summary

IPO is fundamentally a win-win channel for high-quality companies to raise funds and for investors to profit. Although listing conditions and review processes differ between Hong Kong and the US, the core logic remains: a strict review system protects investors while opening financing doors for quality companies.

For those interested in IPO investing, don’t be tempted by stories of “getting rich overnight.” Instead, see it as an opportunity to participate in the long-term growth of excellent companies. Do your homework, control risks, and stay rational—that’s the right way to approach IPO investments.