How to Analyse a US IPO Before Investing: A 6-Point Framework for Indian Investors

Before you put money into a US IPO, check six things: whether the business has a real competitive edge, whether the financials are healthy, whether the IPO price is fair compared to similar companies, when insiders can start selling, whether the company depends too much on one customer, and how much of the company the founders still own after listing.

These six checks take time. But they will help you avoid the single biggest mistake in IPO investing, buying on hype and selling at a loss.

This guide walks you through each point in plain language, with real examples from companies that have already gone public. By the end, there is a scorecard you can fill out for any US IPO before deciding whether to invest.

Why 80% of US IPOs Underperform the Market

Here is a number that should make you pause before buying any US IPO: roughly 80% of US IPOs underperform the small-cap index over three to five years.

This comes from decades of IPO performance research, including long-running studies by Professor Jay Ritter at the University of Florida, one of the most-cited IPO researchers in the world. The finding holds across different market cycles. The average retail investor who buys a US IPO on Day 1 earns significantly less than someone who puts the same money into an index fund.

To put numbers on it: if you had bought the average US IPO at its listing price between 2010 and 2023 and held for three years, your annualised return would have been roughly 6% per year. A broad US market index fund delivered closer to 11% annualised over the same period.

That 5-percentage-point gap matters more than it sounds.

Multiply this across a ₹5 lakh investment, and the difference is nearly ₹88,000. Across ₹10 lakh, it is over ₹1.75 lakh, just from choosing an index fund over the average IPO.

Why do so many IPOs underperform?

The timing of an IPO is almost never in your interest. Companies and their early investors — venture capital funds, private equity backers, and founders who joined when the company was still small — typically go public when valuations are high and the market is willing to pay a premium.

By the time you buy shares at the IPO price, the people who invested years earlier have already made most of their money. You are often the exit liquidity for them.

This is not a conspiracy. It is how markets work. Your job is to be selective — to identify the minority of US IPOs that are genuinely worth buying, and to ignore the rest.

Why selectivity matters more for Indian investors

When you invest in US stocks from India, you use the Liberalised Remittance Scheme, or LRS. LRS is a facility provided by the Reserve Bank of India that allows you to send up to $250,000 abroad each financial year. INDmoney handles the LRS paperwork so you can invest in US IPOs from your phone.

But every dollar you send overseas to a poor-quality IPO is a dollar you cannot deploy into something better. You have a fixed annual remittance ceiling. That makes selectivity more important for you than it is for a US-based investor who faces no such constraint.

The six-point framework below is your filter.

Point 1: Business Quality — Is the Moat Real?

Before you look at a single financial number, ask one question: is this business built to last?

A company with a durable competitive advantage is often called a business with a "moat." The term comes from Warren Buffett, who used it to describe the gap between a strong company and the competitors trying to take its market share. A wide moat means competitors have a hard time catching up. A narrow moat means a well-funded rival could replicate the business in a few years.

Companies without a moat can grow fast for a few years. But eventually, competition compresses their margins, slows their growth, and deflates their valuation. That is often when the IPO investor, who bought at a premium price, takes the loss.

Can You Explain the Business in One Sentence?

Start with the simplest test: can you explain what this company does in one clear sentence?

If you need a paragraph, that is a warning sign. Either the business model is genuinely hard to value, or the company is using complexity to hide the fact that it does not yet have a clear one.

Try it:

• Airbnb: "People rent out their homes to travellers through an online platform." Clear.
• Salesforce: "Businesses use this software to manage relationships with their customers." Clear.
• A company that describes itself as "a vertically integrated AI-native B2B SaaS platform leveraging proprietary LLM infrastructure for enterprise workflow orchestration"? That is not clarity. That is noise.

If you cannot explain the business in one sentence after reading the first two pages of the S-1 (the document every US company files with the Securities and Exchange Commission before going public), treat that as a reason for caution.

What Is the Competitive Advantage?

Once you understand the business, ask the harder question: why can a competitor not simply copy it? There are four major sources of competitive advantage in US technology and growth companies:

1. Network effects: The product becomes more valuable as more people use it. LinkedIn is worth more to you because hundreds of millions of professionals are already on it. If a new professional network launched today, it would need to replicate that entire user base to be equally valuable — almost impossible to do quickly. Airbnb has the same structure: more hosts attract more guests, and more guests attract more hosts.
2. Switching costs: Once a customer starts using the product, leaving is painful. Salesforce is a good example. If your sales team has been entering data, automating workflows, and building custom reports in Salesforce for five years, switching to a rival CRM (Customer Relationship Management) software means migrating all that data, retraining your team, and rebuilding your processes. Most companies do not bother. ServiceNow, which manages IT workflows for large enterprises, has the same structural advantage.
3. Intellectual property (IP): Some companies own patents, formulas, or research that competitors cannot legally copy. Moderna's mRNA vaccine technology is protected by patents. ASML, a Dutch semiconductor equipment company listed on US exchanges, builds chip-making machines so technically complex that no competitor has successfully replicated them in decades.
4. Distribution advantages: Some companies control the channel through which customers are reached. Amazon controls the platform that millions of buyers already trust. Uber controls the driver network and the customer app in dozens of cities. Building an equivalent network from scratch would cost billions and take years.

When you read a company's S-1, look for at least one of these advantages. If you find none, the company is competing purely on price or marketing. That is a fragile position at any valuation, and especially at IPO prices, which tend to be expensive.

Is the Market Growing? TAM vs SAM vs SOM from the S-1

Every S-1 includes a section on market size. Companies use three terms:

• TAM (Total Addressable Market): The entire market if a company could capture every possible customer globally. Example: "The global cloud computing market is worth $1.5 trillion."
• SAM (Serviceable Addressable Market): The portion of that TAM the company can realistically serve given its current product, geography, and business model. Example: "We serve mid-sized US enterprises, a $200 billion opportunity."
• SOM (Serviceable Obtainable Market): The realistic near-term share the company can actually capture. Example: "We expect to reach $5 billion in annual revenue within five years."

The trap is getting excited by a large TAM number. Any company can claim a trillion-dollar TAM if it defines the market broadly enough. "We are in the global transportation market" sounds enormous. It is nearly meaningless.

What matters is the SOM, and whether the company's current growth rate can plausibly deliver it within a reasonable timeframe. If a company has $100 million in annual revenue today, is growing at 30% per year, and projects a $50 billion SAM, ask: how many years does it take to reach even 5% of that SAM at the current rate? And is that growth rate sustainable that long?

The answers tell you whether the market size claim is realistic or just a number to make the slide deck look impressive.

Point 2: Financial Health — Revenue, Margins & Cash Burn

A company can have a great business model and still be a bad investment if its financials are weak. US IPO filings include three years of audited financial statements. Here is what to look for.

Revenue CAGR: 3-Year Trend from the S-1

CAGR stands for Compound Annual Growth Rate. It tells you how fast a company's revenue has been growing each year, on average, over a multi-year period.

One strong year can be misleading. A company might have grown 80% in a single year because of a one-time contract win, a competitive exit in the market, or a brief tailwind that has since faded. A three-year CAGR smooths those anomalies and shows the underlying trend.

For a US technology or high-growth company at IPO stage, a three-year revenue CAGR above 30% is considered strong. Between 15% and 30% is moderate. Below 10% for a company that is still not profitable is a serious concern — because if growth is already slow before listing, there is little reason to expect acceleration afterward.

How to calculate it yourself:

CAGR = (Revenue in Year 3 / Revenue in Year 1)1/2 − 1

Example: A company had $100 million in revenue three years ago and now reports $180 million.

CAGR = (180/100)0.5 - 1 = 1.342 - 1 = 34.2%

That is a healthy growth rate. The S-1 will show you the revenue figures for all three years in the income statement.

Unit Economics: Does the Business Make Money Per Customer?

Even fast-growing companies can destroy value if they spend more acquiring each customer than they ever earn back from that customer. The two numbers that matter here are:

• CAC (Customer Acquisition Cost): How much does the company spend, on average, to win one new paying customer? This includes the cost of salespeople, marketing campaigns, discounts offered to new sign-ups, and any other acquisition-related expenses.
• LTV (Lifetime Value): How much total revenue does an average customer generate over the full duration of their relationship with the company? 

The ratio you want is LTV:CAC. A healthy ratio is 3:1 or above, meaning for every rupee spent acquiring a customer, the company earns back at least three rupees over that customer's lifetime.

Here is a simple example. Imagine a software company:

• It costs them $300 to acquire one customer (CAC = $300)
• Each customer pays $50 per month and stays for 24 months on average
• LTV = $50 x 24 = $1,200
• LTV:CAC = $1,200 / $300 = 4:1

That is a healthy unit economics profile. The business makes $4 for every $1 it spends on acquiring new customers.

If LTV:CAC is below 1:1, the company is spending more to acquire customers than those customers will ever pay back. It can survive by raising more capital, but that capital comes at a cost to existing shareholders, which brings us to the next metric.

Cash Burn Rate: How Many Quarters of Runway Does It Have?

Most US companies going public are not yet profitable. They are investing aggressively in growth, hiring, marketing, product development. That is normal for early-stage technology businesses. What matters is how long a company can sustain operations before running out of money.

• Cash burn rate is how much cash the company uses up each quarter from its operations.
• Runway is how many quarters it can keep operating before needing to raise fresh capital.

The formula:

Runway (quarters) = Cash on balance sheet / Quarterly cash burn rate

Example: A company holds $400 million in cash and burns $50 million per quarter. 

Runway = 400 / 50 = 8 quarters (2 years).

Why does runway matter to you as an IPO investor? Because a company that runs low on cash will raise money again, and the most common way to do that is by issuing new shares. When more shares are created, your existing shares represent a smaller percentage of the total company. This is called dilution, and it directly reduces the value of what you hold.

A general guide: fewer than eight quarters of runway at the time of the IPO is a warning sign. The IPO itself raises cash, which extends the runway, but check exactly how much cash the company will have post-IPO and recalculate.

Point 3: Valuation vs Listed US Peers (P/E, P/S, EV/Revenue)

Even the best business in the world can be a bad investment if you overpay for it. Valuation is the process of comparing what you are being asked to pay for an IPO with what similar, already-listed companies are trading at in the open market.

There is no single metric that works for every company. The right one depends on whether the company is profitable or not.

P/E Ratio for Profitable US IPOs

P/E stands for Price-to-Earnings ratio. It tells you how much you are paying per rupee of the company's annual profit.

P/E = Share price / Earnings per share (EPS)

Example: A company's shares are priced at $100 at IPO, and it earns $5 per share annually. P/E = 100 / 5 = 20. You are paying 20 times its annual earnings for each share.

To judge whether that is high or low, you need a comparable, a listed company in the same industry.

Say a company going public in CRM software is priced at a P/E of 80. Salesforce, one of the established leaders in the same space, trades at a P/E of 40. The IPO is asking you to pay twice as much per rupee of earnings as you would pay for a proven, market-leading business.

Is that justified? Only if the IPO company is growing significantly faster, has meaningfully better margins, or has some clear structural advantage that Salesforce does not. If none of those are true, the IPO is expensive relative to what is already available in the market.

P/S Ratio for Pre-Profit Tech IPOs (Most Common in US)

Most US tech companies that go public are not yet profitable. They are reinvesting every rupee of revenue back into growth. For these companies, there is no earnings figure to use in the denominator, so analysts use revenue instead.

P/S stands for Price-to-Sales ratio. The formula to calculate this is:

P/S = Market capitalisation / Annual revenue

Say the S&P 500 trades at an average P/S of 2. It means investors are paying $2 for every $1 of the company's annual revenue.

Early-stage, high-growth technology companies at IPO often trade at much higher P/S multiples, sometimes 10 to 20 times or even 30 times the revenue. This is not automatically a bad sign. If a company is growing revenue at 40% to 50% per year and has a large, expanding market, investors may reasonably pay a premium today for the future revenue.

But here is where the risk lies: if a company is priced at a P/S of 20 and its revenue growth is slowing from 50% to 20%, the premium is hard to sustain. That slowing growth rate is often the trigger for a sharp post-IPO price drop.

A practical approach: find two or three already-listed US companies that operate in the same industry as the IPO. Look up their P/S ratios. If the IPO is priced significantly above these comparables without a clear reason, faster growth, better margins, a stronger moat, that is a valuation red flag.

EV/Revenue for SaaS and Subscription Businesses

For companies with subscription-based revenue models, particularly Software-as-a-Service (SaaS) businesses, a more precise metric is EV/Revenue.

EV stands for Enterprise Value. It is calculated as:

Enterprise Value = Market capitalisation + Total debt - Cash on the balance sheet

You subtract cash because if you were buying the entire company outright, you would receive that cash as part of the deal. You add debt because you would also be taking on that obligation.

EV/Revenue is more accurate than simple P/S for comparing SaaS companies because two businesses in the same industry might carry very different amounts of debt or cash. EV/Revenue removes that distortion and gives you a cleaner comparison.

As a reference point: mature SaaS companies growing at 20% to 25% annually typically trade at 6 to 10 times EV/Revenue. Faster-growing businesses at 40%+ revenue growth can justify 15 to 20 times. When an IPO is priced above these benchmarks without clearly superior growth or margins, the valuation is aggressive.

Point 4: Lock-Up Expiry — The Risk Indian Investors Miss Most Often

This is the single most important point in this entire framework. And it is the one that Indian investors almost universally overlook.

In India's IPO market, retail investors who receive allotted shares can sell on Day 1 of listing. The concept of a lock-up period, where large shareholders are legally prevented from selling for months after the company goes public, does not have a strong equivalent in the Indian market context. This is why most Indian investors discover lock-up risk only after it has already cost them money.

What Is the Lock-Up Period? (90-180 Days Post-Listing)

When a US company goes public, its founders, early employees, venture capital investors, and private equity backers cannot sell their shares immediately. They are bound by a lock-up agreement, typically for 90 to 180 days after the IPO date.

The purpose of the lock-up is to prevent a flood of shares from hitting the market on Day 1 of listing. If every insider sold on listing day, the price would collapse, and retail investors who bought at the IPO price would face immediate losses. The lock-up gives the stock time to establish a trading price before insiders gain the ability to exit.

Here is why this matters to you: when the lock-up period ends, a large number of people who have been sitting on significant profits suddenly gain the ability to sell. If a meaningful portion of them sell at once, the increased supply pushes the stock price down, sometimes sharply.

This is not speculation. It is one of the most well-documented patterns in US IPO history.

What Typically Happens at Lock-Up Expiry: Real Case Studies

Uber (IPO: May 2019). Uber's stock fell approximately 17% around its lock-up expiry in November 2019. 

Figma (IPO: 2024). Figma, the collaborative design platform, saw its stock drop approximately 80% from its post-listing peak around the lock-up expiry window. The combination of a rich IPO valuation and insider selling created a severe drawdown for those who had bought near the top.

Lyft (IPO: March 2019). Lyft fell roughly 16% in the weeks leading up to its lock-up expiry as investors sold in anticipation of the selling pressure to come. The drop came even before insiders were allowed to sell.

Palantir (IPO: September 2020). Palantir is the important counter-example. When its lock-up expired, founders and senior executives, including CEO Alex Karp, chose not to sell their shares. The market treated this as a strong signal of confidence in the company's future, and the stock held its ground. 

The lesson: what insiders actually do after lock-up expiry is just as informative as the expiry date itself.

How to Find the Lock-Up Expiry Date: S-1 + SEC EDGAR Form 4 Tracking

Finding the lock-up expiry date is straightforward once you know where to look.

• Step 1: Read the S-1. Every US IPO prospectus includes a section called "Shares Eligible for Future Sale." This section specifies the exact lock-up terms, the duration, which shareholders are covered, and any exceptions where certain insiders may be allowed to sell earlier.
• Step 2: Calculate the expiry date. Lock-up periods are counted from the IPO date. If a company lists on 15 March with a 180-day lock-up, the expiry falls on 11 September.
• Step 3: Track Form 4 filings on SEC EDGAR. After the lock-up expires, insiders who sell shares must file a Form 4 with the SEC within two business days of the transaction. You can access all Form 4 filings on SEC EDGAR. Type the company name in the search box, go to the filing page, and filter for Form 4. These filings show you exactly which insiders are selling, how many shares they are selling, and at what price.

If you see a large number of Form 4 filings showing substantial insider sales immediately after lock-up expiry, note it. If insiders are not selling, that is worth noting too.

A practical tip: financial news sites like Seeking Alpha and Yahoo Finance typically cover lock-up expiry dates for major US IPOs. A quick search of the company name plus "lock-up expiry date" will get you there.

Point 5: Customer Concentration Risk — The Hidden Landmine

This risk appears in black and white in the S-1. Most retail investors skip right past it on their way to the revenue chart. That skip has cost many investors significant money.

Customer concentration risk means a company's revenue is heavily dependent on a small number of customers. If one of those customers reduces its spending or cancels its contract, the company's revenue can drop overnight.

The Rule: No Single Customer Should Be More Than 20% of Revenue

A widely accepted threshold in the institutional investment community is that no single customer should account for more than 20% of total revenue.

Above 20%, the company has material concentration risk. In practice:

• If that customer renegotiates its contract at a lower price, the company's margins shrink immediately.
• If that customer terminates the relationship, the company's revenue takes a sudden, visible hit and so does its stock price.
• If that customer is itself facing financial difficulty, the impact travels directly to the IPO company's top line.

This risk is disclosed in the S-1 under the "Risk Factors" section. US companies are legally required to disclose any customer that accounts for more than 10% of their total revenue. Read this section carefully before forming any view on the company's revenue stability.

The lesson: strong price performance after an IPO does not erase underlying business vulnerability. Always find and read the customer concentration disclosure.

Point 6: Insider Post-IPO Stake — The Alignment Check

When founders and senior executives still own a significant portion of the company after the IPO, they have a direct financial incentive to grow the business over the long term. When they have sold most of their stake via the IPO itself, that incentive is weaker.

This is not a guarantee of good performance. There are founders who sold large portions of their holdings at IPO and still built exceptional companies. But insider ownership is a signal worth reading.

What Percentage Should Founders Hold After IPO?

A general reference used by institutional investors:

You will find post-IPO ownership in the S-1 under the section titled "Principal and Selling Stockholders," which lists all major shareholders and their holdings after the offering.

A few additional checks worth doing alongside this:

• Does the founder have a multi-year vesting schedule for remaining shares? This ties a portion of their ongoing compensation to staying with the company and growing it.
• Does the company have a dual-class share structure, where founder shares carry more voting rights than regular shares? This is common in US technology IPOs — Google, Meta, and Snap all used this structure. It means the founder retains operational control even if their economic stake is lower.

Are Insiders Selling via the IPO? (OFS Equivalent)

US IPOs can be structured in two ways:

• Primary offering: The company creates new shares and keeps the proceeds. The money goes onto the company's balance sheet to fund hiring, product development, geographic expansion, or debt repayment.
• Secondary offering: Existing shareholders sell their stakes to new public buyers. The money goes to those existing shareholders, not to the company itself.

In India, this is similar to what is called an OFS (Offer for Sale).

If a large portion of an IPO is a secondary offering, it means the company's earliest backers are primarily using the listing as an exit opportunity. That is not automatically a red flag. Early investors have a legitimate reason to eventually sell their holdings.

But if 80% of the IPO proceeds go to existing shareholders rather than to the company, ask why the largest and most informed backers are so eager to sell at exactly this price, at exactly this moment.

The "Use of Proceeds" section in the S-1 gives you this breakdown in clear detail.

The INDmoney Entry Timing Framework: 3 Strategies for Indian Investors

Once you have completed the six-point analysis and decided that a particular US IPO meets your quality threshold, one question remains: when do you actually buy? Entry timing can meaningfully improve your returns, or protect you from a painful loss in the weeks after listing. Here are three strategies, ordered from highest risk to lowest.

Strategy A: Buy on Listing Day (Day 1) — Highest Risk, Highest Potential Upside

Some investors buy US IPO stocks on the first day of trading. They accept the possibility of paying a first-day premium but aim to capture the initial price surge that often happens with well-received IPOs.

This strategy makes sense only when the IPO is heavily oversubscribed (meaning demand from institutional and retail buyers significantly exceeds the number of shares available), the fundamentals are strong on all six points of this framework, and there is clear near-term growth visibility.

The risk: first-day price spikes often reverse. If market conditions deteriorate in the following weeks, or if the first earnings report disappoints, a Day 1 buyer can be holding a meaningful loss within 90 days.

If you use this strategy, keep position sizes small relative to your overall US stocks portfolio.

Strategy B: Buy After First Earnings Report (~3 Months Post-IPO)

This is a more measured approach and a sensible starting point for most Indian retail investors buying US IPOs for the first time.

Every US-listed company must report its financial results publicly each quarter. The first earnings report after the IPO, typically around three months post-listing is the first real test of whether the company's roadshow projections were grounded in reality.

During the IPO roadshow, management presents optimistic projections to institutional investors to generate demand and a strong listing price. The first earnings report is where those projections meet actual results.

Two outcomes are possible:

• The company beats expectations. Revenue growth is as strong or stronger than promised. Margins are holding or improving. The stock often re-rates upward. This is a second entry point — later than Day 1, but with much more visibility on actual business performance.
• The company misses expectations. Revenue growth is slower than projected. Costs are higher. The stock can drop sharply. For a fundamentally sound business, this post-earnings dip can offer a better entry price than the IPO price itself.

The trade-off is that you may miss a run-up that happens between listing day and the first earnings report. The gain you give up is the price you pay for more information.

Strategy C: Wait for Lock-Up Expiry (~6 Months) — Best Risk-Reward Historically

Of the three strategies, this one has historically offered the best risk-to-reward ratio for patient investors who have done their homework.

The logic is simple: when the lock-up period ends, insider selling pressure, real or anticipated, often pushes the stock down from its listing levels. For a fundamentally strong business, that selling pressure is temporary. It creates a lower-cost entry point that was not available at IPO.

The best way to execute this is through a Systematic Investment Plan (SIP) approach, buying a fixed amount of the stock at regular intervals across three to four purchases rather than deploying all your capital at once. This is also called Dollar-Cost Averaging (DCA).

For example: instead of buying $1,000 worth of stock on one day, you buy $250 per week for four weeks around the lock-up expiry window. If the price falls further as insiders sell, your average entry price is lower. If the price recovers quickly, you still have partial exposure and capture part of the recovery.

One condition applies: this strategy only works for businesses that have passed all six points of this framework. Waiting for the lock-up dip in a fundamentally weak company is not a strategy, it is a slower way to buy into a declining stock.

US IPO Analysis Scorecard: All 6 Points

Use this table to evaluate any US IPO before you invest. Rate each of the six points on a scale of 1 to 3 using the criteria below. A total score of 15 or above is a strong candidate for investment. Below 10, the risks outweigh the opportunity, avoid or wait for a meaningfully better entry.

Score interpretation:

No framework guarantees a winning investment. Markets can stay irrational for long periods. A company can score well on all six of these checks and still fall 30% if the broader market sells off or an unexpected event changes investor sentiment.

The six-point framework is not designed to predict price movements. It is designed to give you a disciplined, repeatable process so your decision to invest in a US IPO is based on analysis rather than a headline.

The 80% of US IPOs that underperform are largely bought by investors who skipped this process. Now you have it.