Tech listings promise growth stories that are easy to admire and hard to price. The post‑pandemic cycle proved that enthusiasm can outrun economics; many freshly listed companies arrived with negative free cash flow, limited operating leverage and full‑fat valuations. The lesson for investors is not to swear off IPOs, but to apply a stricter rulebook.

Start with cash generation, not revenue growth

Revenue growth above 25% is seductive, but it is operating cash flow and gross margin durability that sustain value. Prefer businesses with clear paths to positive free cash flow within 6–8 quarters. Adjusted metrics should reconcile cleanly to GAAP; if they do not, pass.

Underwriting still matters

Look for high‑quality syndicates with a record of bringing repeat issuers to market. Pricing below the top of the range, modest greenshoe usage and insider participation are healthy signals. If the bookbuild relied on late‑stage crossover funds that are now price‑sensitive, be cautious.

Mind the lock‑up overhang

Supply, not newsflow, often drives the first six months. Model the float expansion at lock‑up expiry and the likely behaviour of pre‑IPO holders. A large employee option overhang with strike prices far below the IPO level can create persistent selling pressure.

Unit economics over total addressable market

TAM slides are plentiful; cohort profitability is rare. Demand cohorts where contribution margin improves as customers age, churn remains low and payback periods are under 24 months. For infrastructure or AI platforms, scrutinise gross margins net of third‑party compute and data costs.

Valuation discipline: use a range, not a story

Triangulate price using multiple anchors: EV/sales vs. profitable peers, a medium‑term DCF with conservative terminal assumptions, and scenario analysis on margin expansion. If two of the three imply limited upside, wait.

Position sizing and risk controls

• Initiate with a half‑position; add only after two clean quarters.
• Use a hard stop on thesis breakpoints (e.g., deterioration in gross margin or net retention below 110%).
• Avoid crowding: if borrow cost spikes and options imply extreme volatility, size down.

Red flags

• Heavy reliance on capitalised R&D or aggressive stock‑based compensation adjustments.
• Customer concentration masked by “platform” language.
• AI tailwinds that are actually pass‑through compute resale.

The playbook

Wait 90 days unless pricing is plainly conservative. Track two earnings prints for evidence of operating leverage and cash conversion. Favour companies that compound without serial equity raises. In a market that now charges for capital, discipline is the edge.