How SoFi will offer IPOs to its members

SoFi says it’s not offering every IPO to its users, and CEO Anthony Noto, formerly a partner at Goldman Sachs, acknowledged that newly listed companies can be riskier than the ones that have been trading for a long time. He told CNBC that SoFi will take steps to try to make sure customers have a diversified portfolio (they must have a total account value of at least $3,000 to access offerings), and that they understand what they’re buying.

Could the stock market be democratized if retail investors had access to that first-day pop? A long-running gripe about IPOs is that shares are intentionally underpriced by investment banks to make sure the stock “pops” on the first day of trading. Corporate executives grumble that bankers tend to award that opportunity to their favorite institutional clients. Ritter’s data show a persistent average jump on the first day of buying and selling.

He points out that for every listing with immense demand, like the clouding computing darling Snowflake, there are a bunch of IPOs that have tepid interest. Retail investors could find themselves stuck with lots of shares in the boring deals and not so many in the exciting ones, causing them to underperform. “Underwriters have been unwilling to give outsiders access to the same percentage of shares in all deals,” Ritter said.

Companies are taking control of IPOs away from bankers

Even so, some corporate executives are taking more control of their offerings. Unity Software decided for itself which investors got shares, rather than leaving it up to its investment-banking advisors. Like most companies, the gaming-software firm wanted to suss out which investors would stick with them for long haul. PrimaryBid’s executives argue that many individual investors they see are just that—people who own a stock for three to five years, and that it’s up to companies to decide where the shares go. SoFi’s CEO told CNBC that it will penalize members who flip stocks by charging them higher fees.

And while IPOs tend to get most of the glory, Coombes at PrimaryBid says there’s another opportunity that tends to get overlooked: follow-on fundraising that takes place after an enterprise has listed. Around the world, companies raised $174 billion through IPOs last year and additional $535 billion via follow-ons, according to Refinitiv. Those deals are often at a discount to existing shares, says Coombes, whose company can provide those shares to individual investors. (Ritter agrees that, in principle, follow-on offerings could be an opportunity for everyday people.)

The news on both sides of the Atlantic shows that technology and fintech entrepreneurs are narrowing some of the gaps between professional investors and people who do it from their sofa. But it remains to be seen whether financial education is keeping pace with new opportunities, and whether politicians and executives will still be cheering that trend when the next market downturn happens.

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