Equity offerings represent a company's desire to raise capital by selling a portion of ownership in the company. This may be accomplished through either a private placement or an initial public offering. Private equity placements and initial public offerings are commonly snapped up by institutional investors, but individual investors may also be able to participate in these equity offerings.
Evaluate Your Investment Goals
Purchasing shares of a company during this initial offering can be a high-risk, high-reward investment strategy that may be suitable for institutional investors and some wealthy individuals who can afford the potential loss. You should carefully evaluate your financial resources, your ability to take a significant loss on your investment, your investment temperament and your ultimate financial goals prior to deciding to pursue investing in equity offerings.
Open an Investment Brokerage Account
Equity offerings are typically conducted by an investment banker in partnership with other retail investment firms. Each partner firm is allocated a specific number of shares of the equity offering that they can sell to their customers. You usually must have an investment brokerage account with a partnering firm to purchase shares in an equity offering.
Let your investments broker know you are interested in participating in private or public equity offerings. The bulk of shares from an equity offering typically are sold in large blocks to well-established customers who already have an investment history with the investment banker or partnering retail investment firms. The reason is simple enough; it's easier and more profitable for the broker to sell a few large blocks of stock than a multitude of small blocks of stock. The largest transactions are typically made first, and whatever is left over is parceled out among the smaller investors. Unless your investment resources are extensive, chances are you will have to be patient and wait to see if your order is filled.
Consider Pooling Your Investment
The bulk of equity offerings are scooped up by institutional investors who are able to buy large blocks of stock. Mutual funds are institutional investors, and some mutual funds specialize in investing in equity offerings. You can gain exposure to new equity offerings by investing in these specialized mutual funds. Investing in an equity offering mutual fund also will provide you with the benefits of professional management of your assets and diversification of your investments, which can lower the significant risk often associated with equity offerings.
- Photos.com/Photos.com/Getty Images