Report: Robinhood is allocating 35% of IPO shares to its retail investors

on Jul 1, 2021
  • Robinhood sets aside 35% of its IPO shares for individual investors
  • The typical allocation for individual investors is 10% for most companies
  • The recent meme stock craze makes the case for strong demand from retail investors.

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Robinhood Markets Inc. wants its users to buy its stock. The stock trading platform reportedly set aside around 35% of its initial public offering shares for its mostly retail investors to buy, sources told The Wall Street Journal. At the same time, Robinhood is promoting its new feature that gives its users unique access to IPOs before the general public.

IPO shares offering to individual investors gaining traction

The trading platform’s IPO is likely to test this notion that has started gaining ground on Wall Street. Besides Robinhood, rivals Public Holdings Inc. and SoFi Technologies Inc (NASDAQ: SOFI) will launch their IPO access platforms to capitalize on the latest trend and investor enthusiasm. Moreover, the moves come when the market is expecting one of the busiest summers in the IPO market. So far, over 190 billion worth of stock has been sold year to date in listed IPOs. 

Usually, companies allocate under 10% of their stock to individual investors when they go public. They tend to favor institutional investors who have much deeper pockets compared to retail investors and are more likely to hold stocks for the long term. Robinhood and the likes are not sure if this maxim holds true, especially considering the meme craze we are witnessing can sway stocks so much.

SoFi CEO Anthony Noto said that issues ignoring retail have no clue what happens to their shares after going public. He said:

 “To ignore retail, I think, is a huge risk.”

Offering IPO shares to retail investors in the past

It is vital to remember that efforts to court retail traders have in the past failed. For instance, Loyal3 Holdings Inc. started offering IPO shares to retail investors a decade ago before the idea went viral. Even though the startup opened over 200,000 brokerages accounts, it never caught up. Barry Schneider, who was Loyal3 CEO and Chairman, said:

 “We were early. Today, the difference is the supposition that small individual investors aggregated carry a powerful voice is no longer hypothetical—it’s been proven.”

The advantage for SoFi and Robinhood is their complete brokerage offerings and large user bases. This gives them leverage with issuers and banks. In addition, Noto said that SoFi could determine IPO shares demand among retail investors and give companies real-time information on order sizes, average holding times, and other holdings.