How To Not Lose Money Chasing After The Next Hot IPO

Learn how to avoid becoming exit liquidity by spotting frothy IPO signals, weak math, and inflated stories before buying.

IPO hype cycles repeat because investors forget the math. Here’s how to spot froth before you become exit liquidity.

I’ve recently been talking and posting about Chime (CHYM) and Klarna (KLAR) and how it was easy for me to see that buying these would result in early losses. Maybe it was dumb luck, or maybe I’ve seen a thing or two. And it is hard to put into words, but I can usually feel why these things aren’t going to work out.

You know how it goes: the bell rings, the investment banker smiles, the CEO pumps his or her arms like PT Barnum, confetti falls to the floor, and Jim Cramer is shouting booyah. This is the moment most investors stop asking questions and start repeating stories. So the short reminder today is that if you want to survive a hot IPO season, anchor to three principles and let the market talk to you in numbers, not adjectives.

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1. When Markets Overheat, Valuation Stops Mattering

First thing to remember is that when markets overheat, people stop caring about price. You know it, and I know it. When animal spirits return, every private company boardroom suddenly decides it is “time.” And not because the business transformed, but because the market is willing to pay up.

That is how you get companies coming to the public market windows trading at 15–20x revenue, like Klarna, while still losing money. A Reuters report recently highlighted how investor demand often overrides fundamentals in cycles like this. So the real signal of froth is not volume, it is the collective shrug at valuation.

When people supporting the stock speak in destiny and multiples no longer bother them, I assume I am being asked to fund the story, not the cash flow. In this case, I am the exit liquidity.

2. When the Math Is Weak, the Language Gets Fancy

The next thing to know is that when the math is weak, the language gets fancy. It’s an inverse scale where investment bankers and big-dreaming CEOs think that if the numbers aren’t great, they can create new ones. If a business cannot show durable profits, it shows “adjusted” profits.

You’ve seen them all: adjusted EBITDA, core contribution margin, community-adjusted anything. These are not insights; they are camouflage. The same with giant TAM slides, especially in the stablecoin space, where some decks imply the TAM is every transaction through every financial channel ever.

TAM does not make money. Margins and cash flow do. So I read filings for gross margin, free cash flow, and return on invested capital.

If the deck leads with “transformative,” “category-defining,” or “revolutionary,” I assume the numbers will be trying to gaslight me into believing community-adjusted profit is a real number.

3. Look for the Gap Between the Story and the Spend

The quieter tell is the gap between the story and the spend. If an S-1 brags about “referral-based growth” like in Chime’s case, then customer acquisition costs should be tiny. But if sales and marketing expenses are climbing while management claims referrals and network effects, the flywheel is not a moat; it is a marketing trick.

This was the tell for me with Chime, who spoke constantly about referrals and yet boasted huge amounts of sales and marketing spend. Paying someone or giving kickback cash to refer someone is technically a referral, but it does not match the spirit of the words.

Today, you can do quite a bit with an LLM. I throw S-1s into one and ask for word clouds around “how they grow revenue” or “their strategy for growth.” If management’s words and actions feel off, I tread lightly.

4. Follow the Sellers

A bonus one is to look at who is selling shares. If the offering is dominated by insiders dumping while their stock-based compensation is still running hot, you need to be very cautious. You are about to become the exit liquidity.

5. Wait for the Lock-Up

You should not do what I do in a lot of cases. I tend to get a kick out of shorting some of these either outright or with options. But a good rule of thumb if you’re newer is to wait until the lock-up expires.

Wait until the rest of the insiders, including the VCs who financed money-losing growth at lower valuations, can dump shares on the market. When the CNBC fairy dust fades and when more supply hits, the real story shows up.

I also read the income statement and cash-flow statement before the press release. They are the only pages the marketing team cannot edit.

A recent Federal Reserve release noted how valuation cycles compress when supply hits public markets. The principle applies here.

I ignore TAM slides and look for profit pools. I track stock-based comp and count real dilution. I listen to verbs. If a CEO says “reimagine” and “empower” more than “earn” and “retain,” I know which side of the table I am on.

6. Run a Sanity Check Before You Buy

Before I buy anything new, I run a sanity check: what has to happen for me to win at this price?

If the IPO is priced at 8x revenue and a fair long-term multiple is 4x, revenue must double with stable margins just to break even when multiples compress. If the business needs 30–40% compound growth for three years to justify the price, perfect execution and a friendly macro are priced in.

Then I ask where operating or free cash flow margins need to land, and by when, to make my return attractive after dilution. If the answers sound like hope, I wait.

7. Not Every IPO Is a Trap

To be fair, not every IPO is a trap. Facebook was priced at $38 in May 2012 and stumbled. It set a record for IPO trading volume, closed roughly flat, then slid.

By August, it traded near $20 as lock-ups hit and mobile monetization looked uncertain. The fix was real operating progress. By Q4 2013, mobile ads had flipped from weakness to the majority of revenue. By 2014, roughly 92% of revenue came from advertising, with rising operating leverage.

The stock broke because the market doubted the engine. It re-rated because the engine started printing cash. And the stock did not return to IPO price until the summer of 2013, so you did not need to FOMO buy the IPO pop.

The Real Lesson

Every hot market starts with optimism and ends with rationalization. When stories sound louder than math, you’re the product and exit liquidity.

I like narratives. But I buy numbers. When the window opens, and everyone claps, I let them celebrate, and I read the filings.

Usually, the IPO buyers lose money, and I don’t.

Patience rarely feels heroic in real time. It only looks that way in hindsight.

The ones who wait look foolish at first, but end up with more dollars later.

The best is ahead,

Victaurs

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