The IPO universe expands
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Illustration: Sarah Grillo/Axios
The democratization of IPOs is accelerating, at a time when IPO performance is sagging.
Driving the news: Robinhood Wednesday launched a directed share program via its "IPO Access" platform, which means that participating companies can set aside IPO shares at the IPO price for select groups of people (employees, customers, etc.).
- This came just a day after Rivian, the electric vehicle maker that's about to go public, set aside 0.5% of its Class A common stock to be offered to retail investors via SoFi.
- It's the fifth time SoFi has done a deal via its "IPO Center," but Rivian is the first traditional listing (the first four were SPACs). Per a SoFi spokesperson: "We're part of the underwriting group in each of these deals, so we're given an allocation of pre-IPO shares that members can then express interest in and we distribute the shares accordingly."
Between the lines: All of this is about expanding the universe of investors who can get into newly-listed companies at the IPO price, which often is lower than the opening trade price. In other words, let more people participate in the pop.
- It feels new, after a couple decades of IPO exclusivity for institutional and high-net-worth investors.
- But strategies like directed share programs were commonplace during the dotcom boom. In fact, they once were present in around two-thirds of all U.S. IPOs, often representing a sizable portion of the floats.
- The novelty this time around is the leveraging of fintech apps like Robinhood and SoFi, with plenty more sure to follow.
Warning sign: IPOs have significantly underperformed the S&P 500 in 2021, per Renaissance Capital. Not saying this is 2000 redux, but it's always a bit concerning when gatekeepers open arms that are covered with recent burn marks.
The bottom line: The universe of IPO risk and reward is rapidly expanding.
