Even though an IPO is an excellent opportunity to be part of a good company with growth potential, they are still a risky proposition. These risks include internal and external risks. The meaning of external risk factors in an IPO is given below.
The external risk factors are the factors that influence the stock prices of an IPO but are not intrinsic to the company. These factors are often macroeconomic factors that are beyond the control of the company or its lead managers. The prospectus of the IPO needs to mention all the possible external risk factors in order to ensure that investors can make an informed decision. These macroeconomic factors can be changes in government policies, the latest innovations in the industry that change industry dynamics, changes in dollar rate, etc.