By
Close, Peter Rudegeair
Rudegeair, Peter
Biography
@rudegeair
peter.rudegeair@wsj.com
Updated at 6:24 p.m. on July 1, 2021 ET
Robinhood Markets Inc. wants its customers to invest in the stock market. That is, the internet brokerage firm’s own.
According to a regulatory filing on Thursday, the popular stock-trading app aims to put aside up to 35 percent of shares in its upcoming initial public offering for individual investors, a substantially higher retail allocation than in a usual sale. Robinhood wants consumers to sign up to buy shares on its new platform, which allows users access to initial public offerings (IPOs) before they go public.
The Robinhood IPO is shaping up to be the most significant test yet of a concept that is gaining currency on Wall Street: that the average investor should have a larger role in the IPO market. Rivals to Robinhood
SoFi Technologies Inc. is a company that develops and sells high-
is a social-networking and investing app Public Holdings Inc. is launching their own IPO-access platforms to capitalize on the common investor’s increased power and passion.
The timing isn’t by chance. The summer market for new listings is expected to be the busiest in years. According to data provider Dealogic, companies have sold more than $190 billion in stock in U.S.-listed IPOs so far in 2021, surpassing the previous year’s record amount.
The new platforms are a fresh take on an old concept that never really took off. Despite the fact that amateur investors wield a lot of power over meme stocks like
GameStop Corporation is a company that sells video games.
and
AMC Entertainment Holdings Inc., AMC Entertainment Holdings Inc., AMC Entertainment Holdings Inc
They’ve been mainly excluded from the IPO celebrations. According to brokers, companies typically distribute less than 10% of their assets to individual investors, and much of that supply is snatched up by banks’ rich, well-connected clientele. ( There are a couple of notable exceptions:
Facebook, Inc. is a social media company based in
When it went public in 2012, it sold around a quarter of its IPO shares to individual investors.)
The GameStop craze brought attention to a rising number of investors who use social media sites like YouTube and TikTok to find and spread trade knowledge. Three investors discuss how these internet forums are assisting them in their investment pursuits. Adam Falk/The Wall Street Journal photo illustration
Bankers favor the major money managers with whom they work on a regular basis, many of whom keep equities for a long time. Individual investors, it was assumed, are erratic and flighty.
That maxim may no longer hold true for Robinhood and its ilk, especially in a market where internet forums like Reddit’s WallStreetBets have so much power. Small-time investors are able to maintain hot equities higher for extended periods of time, indicating their perseverance. For example, GameStop shares haven’t traded below $100 since late February; they started the year at under $20.
Retail-oblivious issuers have “zero visibility” into what happens to their stock once they go public, according to SoFi’s CEO.
Noto, Anthony.
“I believe ignoring retail is a major risk,” he remarked.
Robinhood has remained tight-lipped about its IPO access platform.
Despite this, previous attempts to pursue that audience have failed. A business named Loyal3 Holdings Inc. began issuing IPO shares to retail clients of corporations like Microsoft a decade ago.
Dave & Buster’s Entertainment Inc. is a company that owns and operates Dave & Buster’s.
and AMC, years before they became famous. Despite having over 200,000 brokerage accounts and receiving funding from NBA legend Shaquille O’Neal, Loyal3 never took off.
LET US KNOW WHAT YOU’RE CONCERNED ABOUT.
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“We were early,” remarked the narrator.
Barry Schneider is a writer and entrepreneur.
who was the chairman and CEO of Loyal3? “The difference now is that the hypothesis that a group of tiny individual investors has a powerful voice is no longer hypothetical—it has been proven.”
Executives anticipate that their larger user bases and more comprehensive brokerage products will give them more clout with banks and issuers. There are 18 million funded accounts on Robinhood alone. Users who sell their IPO shares rapidly may be penalized by Robinhood and SoFi, who may be barred from participating in future offers for an extended period of time.
SoFi, according to Mr. Noto, can evaluate demand for IPO shares at various prices among its retail-investing customers and supply companies with real-time data on average order sizes, other holdings in a given sector, and average holding times.
Mr. Noto, who worked as a tech banker at Goldman Sachs Group Inc. on multiple such transactions, said, “I would have loved to know” that information when he was the banker on the Twitter IPO.
This week’s theme is
Palihapitiya Chamath
Individual investors received up to 5% of IPO shares in four new biotech-focused blank-check firms via SoFi, which he went public earlier this year through another blank-check company.
More WSJ coverage, hand-picked by the editors: online brokerages High-Frequency Trader Hudson River to Execute Retail Stock Trades: Robinhood Agrees to Pay $70 Million to Settle Regulatory Investigation
Consumer-facing firms are particularly eager to put their ideas to the test.
In addition to its own listing, Robinhood users were given around 2% of the shares in the IPO of Robinhood this week.
Clear Secure Inc. is a company that specializes in security.
the creator of an identification platform that allows passengers to bypass airport security. App for learning languages When Duolingo Inc. goes public, it expects to distribute shares through Robinhood, the business said in a regulatory filing on Tuesday.
Several weeks ago,
FIGS Inc. is a company based in New York City.
a manufacturer of scrubs and other medical clothing, allocated 1% of its first public offering to Robinhood members. The trading app’s focus on first-time investors with minimal account balances appealed to FIGS Co-Chief Executive Officer.
Trina Spear is a model and actress.
: The majority of the nurses and healthcare professionals that work for FIGS make a meager living.
Ms. Spear stated, “The alignment in terms of our customer base and who they serve was there.” FIGS stock has more than doubled since its IPO.
Robinhood and SoFi still have work to do in terms of educating customers about the dangers of investing in startups with no track record in the public markets. Brokerage firms must decide if initial public offerings (IPOs) are viable investments for their consumers based on characteristics such as their income and risk tolerance.
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Users of Robinhood must recognize that initial public offerings (IPOs) “may be riskier than other investments due to a lack of data and other considerations,” but they are not required to read through more detailed disclosures. Robinhood has been chastised for allowing inexperienced investors to assume risks that they may not fully comprehend. The brokerage has agreed to pay roughly $70 million to settle claims that it accepted unqualified investors for dangerous trading techniques, among other things, according to a regulator. The accusations were neither confirmed nor rejected by Robinhood.
The risks were evident in the IPO of a food-delivery firm in March.
Deliveroo Holdings is a company that specializes in food delivery.
PLC. Through British investing company PrimaryBid Ltd, about 5% of the London offering was set aside for individual investors. Those investors were sitting on a paper loss of 26% after the first day of trade.
—
This post was written with the help of Corrie Driebusch.
Peter Rudegeair can be reached at Peter.Rudegeair@wsj.com.
All Rights Reserved. Copyright 2020 Dow Jones & Company, Inc. 87990cbe856818d5eddac44c7b1cdeb8
‘Robinhood Is Offering Individuals IPO Access,’ appeared in the print edition on July 2, 2021./n
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