IPO day is investors’ first real verdict on a company’s story, valuation, and appeal to public investors. For employees, founders, and early investors, it marks the moment when years of hard work are translated into a real-time market price visible on a screen. Since 2001, U.S. operating-company IPOs have delivered an average 18.8% first-day return, measured from the offer price to the first closing price. A move like that can validate a company’s trajectory and create a lot of excitement around the business.
But an IPO is just a milestone, not a destination, and day one is just the beginning.
Long-Term IPO Performance Often Looks Different
The first trade reflects demand, scarcity, sentiment, and the quality of the roadshow. Once the IPO is over, investors refocus on revenue growth, profitability, cash flow, earnings guidance, competitive position, and management’s ability to deliver on their promises, quarter after quarter. Long-term performance depends on the company’s execution as a public business.
Since 2001, IPOs averaged a cumulative 12.0% return over the three years following the first closing price. That sounds positive, and in many cases it was. The catch is that, after adjusting for the broader market, the average IPO underperformed the market (CRSP value weighted index)* by 14.7%.
Ultimately, long-term fundamentals drive long-term performance, and IPOs are like any other equity security in that regard. Over time, factors such as management execution, capital allocation, revenue growth, and earnings growth can influence long-term shareholder returns.
Venture-Backed IPOs vs. Non-VC-Backed Companies
Venture backing helps support market performance, but it is not a magic wand. From 2001 through 2024, VC-backed IPOs averaged a 22.4% first-day gain, compared with 14.8% for non-VC-backed companies. VC-backed companies also had somewhat better three-year returns from the first closing price: 14.0% versus 9.9%. But both groups lagged the broader market over a three-year period.
Venture-backed companies may perform better because institutional investors often help businesses prepare for the transition to the public markets long before an IPO occurs. Venture-backed companies frequently enter the public markets with more experienced management teams, established governance structures, stronger financial controls, and boards with expertise navigating growth and public company responsibilities. While these advantages do not guarantee success, they can create a stronger foundation for operating as a public company and meeting the expectations of public market investors.
IPO Liquidity and Insider Selling Considerations
Liquidity is another point that often gets lost in the celebration. Going public does not mean every share can be sold immediately. In 2025, the median IPO sold only 14.5% of shares into the public float. The rest typically remained held by employees, founders, early investors, and other insiders, and were often subject to lockups, trading windows, tax considerations, or company-specific restrictions. These shares often provide a supply of new sales during the first few years of trading.
Anyone with meaningful shareholdings in a company about to IPO should prepare well before the stock starts trading. Such shareholders should know when they can sell, what taxes may apply, how much of their net worth is tied to the company, and how diversification fits into their broader goals.
*CRSP is a broad U.S. stock-return database used in academic finance. Unlike the large-cap S&P 500, it includes Amex/NYSE American, NYSE and Nasdaq stocks, making it a better market benchmark for IPO studies.
Source: https://site.warrington.ufl.edu/ritter/ipo-data/
Data are from Jay Ritter’s “Initial Public Offerings: Updated Statistics,” updated May 18, 2026. Ritter generally focuses on operating-company IPOs and excludes categories such as SPACs, ADRs, REITs, closed-end funds, banks and S&Ls, unit offerings, penny-stock offerings, small best-efforts deals, and companies not listed on CRSP within six months. Long-run returns are generally measured from the first closing market price, not from the IPO offer price.
