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Illustration: Sarah Grillo/Axios

The story of last week's Snowflake and Unity Software IPOs had little to do with data warehousing or 3D game development, and lots to do with dizzying "pops" after pricing.

What happened: The Robinhood effect.

By the numbers: Unity priced its IPO at $52 per share and began trading Friday at $75 per share. It later pulled back a bit to close at $68.35, but that was still up more than 31%.

  • Snowflake priced at $120 per share and began trading Wednesday at a whopping $245 per share. It closed Friday trading at $240.

Between the lines: People close to both IPOs say that the increases were driven almost exclusively by retail traders, which represented single-digit percentages of the floats.

  • “The institutions didn’t sell,” says a source involved with Snowflake. “What you saw was a Robinhood feedback loop.”
  • Unity implemented an online bidding system, designed by the company and coded/implemented by Goldman Sachs, whereby all potential institutional investors had to enter IPO requests at different ranges with nobody submitting market orders.
  • For example, Primack Investors LP said it would buy 200k shares at $52, but only 100k shares at $55. This gave Unity much more demand curve data, but still couldn’t account for retail investors (or for its own employees, who had lighter lockups than is typical).

To be sure, underwriters are tasked with helping to anticipate retail demand — and just because institutions aren’t selling doesn’t mean they aren’t lending. But it’s not correct to claim, for example, that Snowflake could have priced the IPO at $245 and that the delta was lost working capital.

The bottom line: Every IPO issuer wants pricing efficiency, with Unity taking it more seriously than most. But there's little they can do once their shares float into irrational exuberance.

Go deeper

Felix Salmon, author of Capital
Dec 17, 2020 - Economy & Business

Robinhood accused of securities law violations

Illustration: Sarah Grillo/Axios

Robinhood is an unreliable trading platform that takes advantage of the poor, uses sophisticated gamification techniques to get them to spend money, and lies to them about their trades being free, according to a pair of lawsuits filed yesterday and today by the Securities and Exchange Commission and the state of Massachusetts.

Why it matters: Robinhood is the fastest-growing brokerage the world has ever seen, growing to an $11 billion valuation on the back of its ostensibly free trades and the gamification tools it uses to encourage its customers to do more of them.

Felix Salmon, author of Capital
Dec 17, 2020 - Economy & Business

Upstart's path to going public

Illustration: Sarah Grillo/Axios

According to the Consumer Financial Protection Bureau, Upstart's algorithm — a company that helps banks to underwrite loans — approves 27% more applicants than a traditional model, and twice as many "near prime" consumers with FICO scores between 620 and 660. It also yields 16% lower interest rates.

Driving the news: Upstart raised $180 million in an IPO this week, ending trading on Wednesday with a market capitalization of $2.1 billion.

Oath Keepers leader denied bail on Capitol riot sedition charge

Oath Keepers co-founder Elmer Stewart Rhodes. Photo: Susan Walsh/AP

A federal judge ordered Oath Keepers leader Stewart Rhodes to remain jailed Wednesday until trial on charges stemming from the Capitol riot.

U.S. Magistrate Judge Kimberly Priest Johnson e in the t figure charged in the Jan. 6, 2021, insurrection had access to weapons and his alleged "continued advocacy for violence against the federal government" gave credence to prosecutors' view that, if released, Rhodes could endanger others.