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.

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