Imagine you are at the market, and you decide to buy something from Mama Ngozi's tomato stall. When you want to pay Mama Ngozi for the tomatoes you picked, you can pay her either directly from your pocket or through someone helping you manage your money, like your brother or sister.Now, in the caseRead more
Imagine you are at the market, and you decide to buy something from Mama Ngozi’s tomato stall. When you want to pay Mama Ngozi for the tomatoes you picked, you can pay her either directly from your pocket or through someone helping you manage your money, like your brother or sister.
Now, in the case of the Dangote Refinery Initial Public Offering (IPO), subscribing is like signaling that you want to buy shares in the company. After you’ve made this decision, the way the money is deducted depends on how you initially set it up. If you chose to pay directly from your bank account, the money will be taken from your bank account, just like when you pay Mama Ngozi directly from your pocket at the market. But if you decided to go through a broker, then the money will be deducted from your broker account, just like when you ask your sibling to pay Mama Ngozi for the tomatoes on your behalf.
In simple terms, subscribing to the IPO and paying for the shares can happen either directly from your bank account or through your broker account, depending on the arrangement you made. Just like at the market, where you can pay Mama Ngozi yourself or have someone help you pay, the choice of how you pay for the IPO shares ultimately depends on how you set up your subscription.
The idea that "private investors dump on the public at IPO" contains some truth in some cases, but it is not always true. Understanding how IPOs work helps you avoid overpaying. How the IPO process usually works Before an IPO, companies often raise money through: Founders' capital Angel investors VeRead more
The idea that “private investors dump on the public at IPO” contains some truth in some cases, but it is not always true. Understanding how IPOs work helps you avoid overpaying.
How the IPO process usually works
Before an IPO, companies often raise money through:
Founders’ capital
Angel investors
Venture capital/private equity investors
Private placements
These investors usually bought shares at much lower prices and years earlier, taking much higher risks.
When the company eventually goes public through an IPO, the public gets access to the shares, often at a higher valuation.
The concern is that some early investors may use the IPO as a liquidity event, meaning they finally have a chance to sell and realize profits.
Should you buy at the IPO price?
Not always.
There are generally three scenarios:
1. Good company, reasonable valuation
Buying at the IPO can work well.
Examples include some companies that continued growing strongly after listing because the IPO price was not excessive.
2. Good company, overpriced IPO
This is where many retail investors get hurt.
Excitement pushes demand up, but the valuation already assumes years of future growth.
In such cases, waiting several months may result in a better entry price.
3. Weak company using IPO to exit
This is the situation people warn about.
If insiders are eager to sell and the business fundamentals are weak, the stock may decline significantly after listing.
Why many investors wait
Experienced investors often wait:
3 to 12 months after listing
For the hype to fade
For the first few earnings reports
For lock-up periods to expire
A lock-up period is a period during which insiders cannot sell their shares. When it expires, additional selling pressure can occur.
The best IPO strategy for most retail investors
Instead of automatically buying every IPO:
Read the prospectus.
Understand how the company makes money.
Check revenue and profit growth.
Compare valuation with similar listed companies.
Look at debt levels.
See how much existing investors are selling versus how much new capital the company is raising.
A useful question is:
“Is the company raising money to grow, or are existing shareholders mainly cashing out?”
The second scenario deserves extra caution.
How this applies in Nigeria
For Nigerian IPOs, pay attention to:
Dividend history (if available)
Earnings per share (EPS)
Price-to-Earnings (P/E) ratio
Net asset value
Future expansion plans
Regulatory and sector risks
Many successful Nigerian investors focus less on IPO excitement and more on whether the valuation is attractive.
A practical rule
For most retail investors:
Don’t buy an IPO simply because it is new.
Buy if the valuation makes sense.
If you cannot determine fair value, wait for 1–2 earnings reports after listing.
Be patient; opportunities usually reappear after the initial excitement.
The biggest advantage of private-placement investors is not that they bought before you. Their advantage is that they bought earlier and took more risk. Your advantage as a public investor is that you can see audited financials, public disclosures, and market reactions before committing your money.
In investing, missing the first 20% of a stock’s move is often better than losing 50% because you rushed into a highly publicized IPO.
Does My Broker Deduct IPO Subscription Funds From My Brokerage Account?
Imagine you are at the market, and you decide to buy something from Mama Ngozi's tomato stall. When you want to pay Mama Ngozi for the tomatoes you picked, you can pay her either directly from your pocket or through someone helping you manage your money, like your brother or sister.Now, in the caseRead more
Imagine you are at the market, and you decide to buy something from Mama Ngozi’s tomato stall. When you want to pay Mama Ngozi for the tomatoes you picked, you can pay her either directly from your pocket or through someone helping you manage your money, like your brother or sister.
Now, in the case of the Dangote Refinery Initial Public Offering (IPO), subscribing is like signaling that you want to buy shares in the company. After you’ve made this decision, the way the money is deducted depends on how you initially set it up. If you chose to pay directly from your bank account, the money will be taken from your bank account, just like when you pay Mama Ngozi directly from your pocket at the market. But if you decided to go through a broker, then the money will be deducted from your broker account, just like when you ask your sibling to pay Mama Ngozi for the tomatoes on your behalf.
In simple terms, subscribing to the IPO and paying for the shares can happen either directly from your bank account or through your broker account, depending on the arrangement you made. Just like at the market, where you can pay Mama Ngozi yourself or have someone help you pay, the choice of how you pay for the IPO shares ultimately depends on how you set up your subscription.
See lessWhat Is the Best Investment Strategy for Retail Investors During an IPO?
The idea that "private investors dump on the public at IPO" contains some truth in some cases, but it is not always true. Understanding how IPOs work helps you avoid overpaying. How the IPO process usually works Before an IPO, companies often raise money through: Founders' capital Angel investors VeRead more
The idea that “private investors dump on the public at IPO” contains some truth in some cases, but it is not always true. Understanding how IPOs work helps you avoid overpaying.
See lessHow the IPO process usually works
Before an IPO, companies often raise money through:
Founders’ capital
Angel investors
Venture capital/private equity investors
Private placements
These investors usually bought shares at much lower prices and years earlier, taking much higher risks.
When the company eventually goes public through an IPO, the public gets access to the shares, often at a higher valuation.
The concern is that some early investors may use the IPO as a liquidity event, meaning they finally have a chance to sell and realize profits.
Should you buy at the IPO price?
Not always.
There are generally three scenarios:
1. Good company, reasonable valuation
Buying at the IPO can work well.
Examples include some companies that continued growing strongly after listing because the IPO price was not excessive.
2. Good company, overpriced IPO
This is where many retail investors get hurt.
Excitement pushes demand up, but the valuation already assumes years of future growth.
In such cases, waiting several months may result in a better entry price.
3. Weak company using IPO to exit
This is the situation people warn about.
If insiders are eager to sell and the business fundamentals are weak, the stock may decline significantly after listing.
Why many investors wait
Experienced investors often wait:
3 to 12 months after listing
For the hype to fade
For the first few earnings reports
For lock-up periods to expire
A lock-up period is a period during which insiders cannot sell their shares. When it expires, additional selling pressure can occur.
The best IPO strategy for most retail investors
Instead of automatically buying every IPO:
Read the prospectus.
Understand how the company makes money.
Check revenue and profit growth.
Compare valuation with similar listed companies.
Look at debt levels.
See how much existing investors are selling versus how much new capital the company is raising.
A useful question is:
“Is the company raising money to grow, or are existing shareholders mainly cashing out?”
The second scenario deserves extra caution.
How this applies in Nigeria
For Nigerian IPOs, pay attention to:
Dividend history (if available)
Earnings per share (EPS)
Price-to-Earnings (P/E) ratio
Net asset value
Future expansion plans
Regulatory and sector risks
Many successful Nigerian investors focus less on IPO excitement and more on whether the valuation is attractive.
A practical rule
For most retail investors:
Don’t buy an IPO simply because it is new.
Buy if the valuation makes sense.
If you cannot determine fair value, wait for 1–2 earnings reports after listing.
Be patient; opportunities usually reappear after the initial excitement.
The biggest advantage of private-placement investors is not that they bought before you. Their advantage is that they bought earlier and took more risk. Your advantage as a public investor is that you can see audited financials, public disclosures, and market reactions before committing your money.
In investing, missing the first 20% of a stock’s move is often better than losing 50% because you rushed into a highly publicized IPO.