Software IPOs are back in a big way. After the recession effectively reeked havoc on every single stock across the globe, finally things started moving in a positive direction sometime around February. At first, the filings were slow, but there was a resurrection of software IPOs. Software IPOs are my personal favorite to deal with and I have made thousands of percent investing in them- I'll show you how I do it below.
The first step in profiting with software IPOs is to first read the IPO's prospectus. This SEC mandated document has all the necessary information one must possess in order to profit from these highly lucrative IPOs.
When reading the prospectus, which can easily be found on the SEC EDGAR website, the number one thing you need to look at are the underwriters. Not all IPO underwriters are the same, as just like anything else, there are the good, the bad and the mediocre. Software IPOs are no different than any other; find the power underwriters, find the profit.
When I look for a high quality IPO, I like to see underwriters like Goldman Sachs, Credit Suisse and Morgan Stanley. These are all very effective, experienced and reliable underwriters and as I said before, I've made huge gains investing in software IPOs that had them bringing their IPO to market.
The second but also just as important as the underwriters is the "Use of Proceeds" statement which is also in the prospectus. This statement explains what the company, specifically the software IPO, will be doing with the proceeds, or the cash from the initial public offering.
What you should look for is something like, "possible business acquisitions" or "research and development". Seeing terms like "general corporate purposes" and "we will not receive any proceeds" are warning signs and should be taken as such.
Investing in IPOs is quite easy and extremely profitable. IPOs have come back and are better than they've been in years. You are entering a perfect time to jump into one of the most profitable investing environments available.