Good morning my dear readers,

A great long weekend ahead. Finally some respite for the Bears 😁.

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Today, we will keep it very short.

I wanted to share a personal thought of mine regarding IPOs with you..

*Before we start, note that there can be exceptions to every situation.

How should we think about investing in IPOs?

There are two type of distinct IPOs,

A) A small cap or smaller-midcap ipo where a first generation founder is raising money purely for expansion purposes.

There would not be any OFS component in such an IPO.

**This type of IPOs typically have a first generation founder who has seen hardship and is now trying to make a name for himself. He has a lot of fire and determination to succeed.

I love these kind of IPOs. I always look to study these IPOs in detail and make an informed decision.

B) Large Cap or big Midcap IPOs where the first generation founder is already quite successful and now in retirement mode looking to cash out via OFS component.

These are typically good companies but extremely expensively priced as the promoter is doing a partial cash out now to enjoy life.

There are no hardships anymore in his life. Fire is far lesser. He's older now, 60+ age etc.

There is also potentially 2nd or 3rd generation kids who have never seen hardship and don't really have a 'do or die situation'.

(Ofcourse, 2nd and 3rd Gen can also have fire to succeed and there can be exceptions, always).

But the majority of these are privileged individuals.

These kind of expensive IPOs, where there is a large OFS component, I typically look to avoid.

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Now ofcourse, a first generation, hungry founder can also fail.

And a silver spoon 3rd generation founder can also succeed.

But these the above two lines are exceptions in my opinion.

(Mind you my friends, this is just my opinion after being in markets since many years, I could well be wrong on many occasions).

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Conclusion: While there will always be exceptions, look more closely for IPOs which don't have OFS component and ones which have young first generation founders.

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By the way..

Looking at the Mama Earth stock valuations, I feel really good that we managed to invest in R for Rabbit at a very reasonable valuation.

(R for Rabbit is an e-commerce focused, Babycare business).

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That's all from me today my friends..hope this thought adds some value to you.

Have a great weekend ahead.

My Best,

Neil Bahal

Your friendly neighborhood Fund Manager

Negen Capital

Disclaimer: This newsletter is for educational purposes only. While the newsletter discusses just general market insights and past case studies, still, the stock market is a very risky place which can result in losses.

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