The Size of the IPO Company Matters When Investing

So in class today we had an interesting conversation about IPO investments. Based on the conversation, IPO investments for the first 4 years seem to significantly underperform the market. Here's the catch though, if the IPO company is venture backed that works in favor of the IPO company and if it is a large company going public, then that is positive for the company. There is an ETF that looks for these criteria and has done very well. It mirrors the IPOX-100. It's ticker is FPX. Something else that is interesting to read is an article in the Journal of Finance, Dec. 1997, called Myth or Reality? The Long Run Underperformance of IPOs: Evidence from Venture and Nonventure Capital Backed Companies. It's definitely a good read.