Taking advantage of over-hyped IPOs

So I was reading about startup IPOs – when a company first offers company stock to the public – the other day. This process has some interesting points: first, I’ve noticed that many of these companies try to create massive amounts of hype prior to their IPO to attract many buyers, making the stock price increase rapidly in the initial phases. But when I looked at the data of many of the stock prices six months later, most of them decreased back down do an equilibrium point with market forces kicking in.

There are several reasons why this could have occurred: once the company declares itself public, it is mandated to share its future vision, finances, and all other sorts of data, making the company vulnerable to all types of financial calculations and estimates from traders globally. This naturally allows the market to dictate the price, rather than external influences that over-hype the stock initially. Another reason, which is less subtle, is that the management team, investors, and founders usually agree to a clause which prevents them from selling any of their equity for six months after the IPO. This prevents any startup founder or high stake holder to sell their entire stock, giving the company a horrible image in the market. But after six months, more often than not, several founders and high-stake holders invariably sell part of their stock, liquidating some of their assets, allowing them to gain more financial security. Since any stake-holder selling their stock after an IPO is a bad signal, the trend mentioned above may potentially help lower market estimates of the stock’s worth.

But now, the key question is: despite the above trends, why do buyers continue to purchase stock in the very beginning of the IPO, when the stock is severely over-hyped? Wouldn’t it be wiser to short sell the stock in the initial week and make money off the equilibration phase that takes place over the next few months? And THEN, if the company shows promise, buy the stock after the equilibration price is attained?

Would love to hear your thoughts.