How to Buy IPOs Through Self Distribution of Stock

Self distribution of stock is a type of IPO, or initial public offering. In this offering, the company selling stocks will offer its shares directly to the public and cut out the need for an underwriter. These types of IPOs save the company money because it doesn't have to sell stock at a discounted price to the underwriters. This can be a difficult way to purchase shares in IPOs.

Instructions

Difficulty: Moderately Challenging

Buy IPOs Directly From a Company Through Self Distribution Of Stock

1. Tell your broker that you are interested in IPOs. While many investment banks and brokerage firms reserve IPOs for their richest clients, self distribution IPO transactions are done by the company selling stock and are available to anyone who has knowledge of them. Your broker should keep you aware of any self distribution IPOs.
2. Build contacts and relationships with local businesses. Often you can only participate in self distribution of stock IPOs if you have insider knowledge of the company. It's true that IPOs are listed on small stock exchanges, but that only tells you about the stock's price, not about its availability.
3. Help out these businesses when they are looking for venture capital. Before a company goes public, it often has to do several rounds of fund-raising through venture capitalists. If you can invest in companies this way, you'll likely have advance knowledge of a self distribution IPO, should one happen.
4. Find out who to talk to about buying these stocks. In a self distribution IPO, you have to buy the stock directly from the company, not from an underwriter. The company's financial officers should be able to tell you how many stocks are available and for what price.
5. Buy your stocks through the company and then hold on to them for the required time. In addition to the federal law that prohibits disclosing IPO gains for 40 days, most IPOs require that you hold on to the stocks for 60 to 90 days. This rule stops investors from selling stocks shortly after the company goes public and the stock price rises.

Tips & Warnings

• Getting involved with local businesses is a great way to establish yourself as an investor. This method can also be financially beneficial because you avoid paying fees associated with going through a broker or underwriter.
• Often your stockbroker won't be able to notify you of many self distribution deals. These deals are organized within the companies and companies won't tell brokerage firms that they are going public.