Etsy, the online crafts marketplace that just filed for an IPO, is allowing customers and other fans of its artisanal goods to buy shares in its multimillion-dollar public offering at the same price and time as Wall Street investors.
Typically, underwriting banks like Goldman Sachs and Morgan Stanley reserve access to IPOs for their best customers, who tend to benefit from the share price pops that typically accompany a stock’s first day of trading. By the time mom and pop investors get access to the offerings, Wall Street has already booked the bulk of the initial profits.
Etsy said it would set aside 5% of its shares for customers and other individual investors, a move that speaks to a growing number of outlets trying to give small investors access to financial products usually reserved for wealthy investors and Wall Street bigwigs. (Participation will be capped at about $2,500 per investor; only US residents are eligible and they will need to have a Morgan Stanley account to qualify for the set-aside.)
While uncommon, programs like these are not without precedent. Peer-to-peer lending marketplace LendingClub set aside a portion of its shares for customers who wanted in on the stock’s debut (its shares jumped more than 50% on their first day of trading). Likewise, US movie chain AMC Entertainment Holdings opened up its IPO to members of its customer loyalty program.
While the spirit of Etsy’s sharing community rings true in the offering, history teaches us that the concept of buyer beware still persists. Back in 2006, internet telephone company Vonage offered about 13.5% of its IPO shares to thousands of customers, but the plan backfired when the IPO tanked and investors launched a class-action suit claiming underwriters made false claims about the company.