Years ago the business world was predominantly run by monopoly companies, blocking out any potential opponents. However, after seeing the advantages that competition can have, such as lower prices and newer, better products, modern mom and pop shops are making a comeback in the form of larger companies.

One of the challenges of starting one of these businesses is finding the funds to do so. Between hiring employees, renting property, and covering early production costs, companies need capital to expand even before they can receive any sales. In order to gain these finances, companies can conduct initial public offerings (IPO) to sell a portion of the organization to investors.
initial public offerings benefit institutional investors who are willing to buy large quantities of stock before its official debut. Not only will they receive interest from the IPO company’s profits, but down the line they could also sell the shares. These hedge funds and investments banks end up providing the company with triple-digit gains just on the first day of trading.

With so much money being transferred between entities, most investors will only buy stock if they are confident the company will be profitable. One general rule they follow is if market is doing well, any relevant IPO filings will also do well. For instance, if investors believe that an S and P 500 will increase to double digits the next year, initial public offerings will follow suit, and may even outperform their benchmark.

One good example of this is the success of exercise product company, FitBit. Because health supplements and products are currently enormously popular, many investors will project these types of organizations will do very well. In their initial public offering, FitBit put up 36 million shares for sale valued at a total of $741 million. Since then their stock has risen by a whopping 50%.

For savvy investors and hedge fund prime brokers, with a little market analysis, there is a lot of potential for profit from IPOs.