Once I labored at Goldman Sachs and Credit score Suisse, we might often convey a sizzling IPO deal to market. In the course of the firm roadshow, we’d take administration round to satisfy one on one with our largest buyers and shoppers. Typically the IPO was so in demand that many purchasers couldn’t even get a one on one, and as a substitute needed to accept a gaggle breakfast, group lunch, or group dinner.
After assembly administration, shoppers would submit their indications of curiosity. Because the lead e book runner of the IPO, we determined how a lot of an allocation every consumer would get. And let me inform you, that course of was harder than deciding which mates and family to go away off the visitor listing for a restricted funds wedding ceremony.
Some shoppers received zero shares, which made them understandably indignant. However they have been zeroed as a result of they both did too little enterprise with us or have been recognized for flipping shares for a fast revenue quickly after buying and selling started. Suppose small hedge funds.
Different shoppers obtained way over the common allocation. If the IPO was ten instances oversubscribed, the common consumer would possibly get 10 p.c of their request. However our greatest shoppers would possibly get 30 p.c to 70 p.c of what they requested for, based mostly on the enterprise they generated. Suppose Capital Group, Constancy, and BlackRock.
When buying and selling started, there was typically a direct pop within the share value, delivering instantaneous good points to those establishments. In different phrases, the wealthiest shoppers who paid probably the most in charges typically received the most important allocations and the best returns.
You Are Not Wealthy or Well-known Sufficient to Get a Massive Allocation in a Scorching IPO
Attempting to get a significant allocation in a sizzling IPO is a futile course of for the common retail investor. With out monumental wealth, fame, or connections, you merely don’t have any likelihood. Take Figma (FIG) for instance. The design firm raised $1.2 billion in its IPO, valuing it at $19.8 billion, the identical value Adobe had tried to purchase the corporate for a number of years earlier.
Figma and its e book runners allotted a tiny portion of shares to retail buying and selling platforms like Robinhood. When you have been a Robinhood consumer, you might point out your required allocation, however you’d be stuffed completely at their discretion. With Figma’s IPO forty instances oversubscribed—$48 billion in demand for $1.2 billion in shares—the common allocation was simply 2.5 p.c of what was requested. In actuality, many retail buyers received 1 p.c or much less.
Think about requesting 1,000 shares value $33,000 and getting only one share value $33, like one investor beneath who had $10 million along with his dealer. What a slap within the face!
Or possibly you have been luckier, and received 1 share out of a 600 indication of curiosity like this fella beneath. However who cares? 1 share would not do something for anyone at $33/share.
Examples like these are all over the place. Ebook runners know that many purchasers and people play the sport of inflating their indications of curiosity, so they have an inclination to chop allocations even additional to offset the bluffing.
Massive Achieve On IPO Day
Figma’s IPO ended up popping by 333 p.c on its first day of buying and selling, closing at $122 a share. The bookrunners knew it might seemingly carry out nicely as a result of they’d already seen robust demand from institutional shoppers keen to purchase at even greater costs.
If the bookrunners performed their allocation playing cards proper, they enriched their most beneficial shoppers by giving them greater than the common allocation and ensuring these shoppers knew it. In return, these shoppers ought to reward them with extra enterprise.
It’s not written down anyplace, however that’s how enterprise is finished. You handle your shoppers, and your shoppers handle you. Think about getting a $10 million allocation and making $27 million in someday. It is like free cash for those who’re already an enormous consumer.
The Johnny Come Currently IPO Investor
After a 333 p.c pop on day one, would you aggressively purchase a inventory buying and selling at ~600 instances ahead earnings? Most likely not. But loads of retail buyers get swept up within the hype and leap in. Why not? YOLO for even higher riches.
The issue is that when it’s within the headlines, it’s already within the value. As soon as an organization is public, the benefits and relative security of being an early investor vanish. You at the moment are on the mercy of market sentiment and unpredictable outdoors occasions.
Say to procure Figma after its IPO leap to $122. The following morning you might need been thrilled to see it spike to $133. However by the top of the day, it had fallen greater than 20 p.c from that top. That may be a tough trip for a brand new shareholder.
No person is aware of the place Figma’s share value will go from right here. But when your entry was on IPO day, your common value is someplace between $107 and $122 a share at a 600 instances ahead P/E a number of. That may be a steep hill to climb for optimistic returns. The corporate now has to set bold income and earnings targets and beat them constantly to justify that valuation.
Firms Are Staying Non-public For Longer
Previously, investing in an organization throughout its IPO was safer. For instance, Google was a personal firm for six years (9/1998 – 8/2004) earlier than it IPOed, elevating $1.67 billion at a $23 billion valuation. When you invested in Google throughout its IPO and held on till immediately, you’d have clearly performed very nicely.
However immediately, firms are staying non-public for longer with extra of the good points accruing to non-public buyers. Because of this, it is solely logical to allocate a bigger proportion of your investable capital to private growth companies. I goal for between 10 p.c to twenty p.c.
The Higher Technique to Spend money on Scorching IPO Firms
Do you need to combat for IPO scraps and overpay as soon as a development firm goes public? Or would you fairly personal shares earlier than the general public bidding frenzy even begins? Most rational folks would select the latter.
The fact is that many buyers both don’t perceive how the IPO course of works or don’t understand there’s a extra strategic approach to acquire publicity earlier than an organization lists. A giant purpose for that’s most individuals are usually not accredited investors and are due to this fact locked out of personal firm and personal fund alternatives.
If you’re accredited and need to personal stakes in fast-growing non-public firms—many within the tech sector—you may allocate a portion of your capital to venture capital funds.
The standard mannequin sometimes requires a minimal funding of $100,000 to $200,000 and relationships with the fund’s basic companions to even get within the door. As soon as in, you typically commit capital over three years, hope the companions select properly, and pay two to 3 p.c in annual charges plus 20 to 35 p.c of income.
Even in enterprise funds, who you might be determines how a lot you may make investments. If a fund is run by a basic accomplice with a stellar observe document, demand to speculate can exceed the fund’s goal elevate.
Sequoia Capital, top-of-the-line enterprise funds in historical past, is a major instance. Solely workers, jailed star founders like Sam Bankman-Fried, massive establishments, and shut family and friends sometimes get in—and their allocations are nonetheless typically diminished.
The Enterprise Capital Funds That Invested in Figma
Listed here are a number of the VC corporations that backed Figma earlier than its IPO and the returns they noticed on the providing value. Most buyers wouldn’t have had the prospect to take part in these funds. And even for those who did, your allocation would rely closely on who you might be.
Each enterprise fund units apart a portion for family and friends as a goodwill gesture and strategic transfer. Fundraising might be powerful, and getting on the capital desk of the following sizzling startup is fiercely aggressive. If a VC is elevating a $500 million fund, they could earmark $50 million for family and friends.
A private finance blogger and two-time nationwide bestselling writer could be invited to speculate $150,000 in such a fund. That investor may add worth by selling the fund’s portfolio firms or aiding future fundraising.
In the meantime, the CEO of a public firm with a powerful observe document of angel investing might be supplied the prospect to speculate $1 million to $2 million in the identical fund. Their involvement elevates the fund’s profile, opens doorways to promising startups, and may even result in strategic partnerships. If applicable, the CEO’s firm would possibly even turn out to be a significant consumer for one of many fund’s investments, e.g. Microsoft being an investor and buyer of OpenAI.
Demand For Changing into A LP In These Enterprise Capital funds
Given the success of the Figma IPO for these funds, demand from people and establishments to spend money on future vintages will solely develop. The enterprise capital corporations will then must determine how massive a fund to boost and tips on how to allocate area amongst buyers.
I’m personally invested in three vintages of one of many enterprise corporations that backed Figma. Sadly, my funding quantities in every are usually not massive sufficient to create actually life-changing wealth if one other Figma emerges. A part of that’s as a result of I’ve a comparatively small funding quantity ($140,000 – $200,000 every). The opposite half is that my definition of “life-changing cash” has shifted upward since altering my life for the higher in 2012, after I left my job.
The Higher Technique to Spend money on Firms With Promising IPOs
As an alternative of scrambling for scraps throughout an IPO or paying inflated costs as soon as an organization lists, I desire to speculate whereas the enterprise remains to be non-public. As a personal investor, listed below are the important thing choices you have to make:
- Select the fundraising stage properly.
Not each non-public firm makes it to an IPO or has an enriching liquidity occasion. Traditionally, Collection B or C rounds have a tendency to supply the most effective steadiness between threat and reward for firms that would ultimately go public. - Determine the appropriate firm or enterprise capital agency.
That is simpler than most individuals suppose. Knowledge on VC agency efficiency and firm development is extensively out there. The problem is gaining entry. Being an angel investor is extraordinarily troublesome given you typically do not get the most effective seems. - Community and supply worth.
Cash is ample. What’s scarce is value-add capital—buyers who convey experience, connections, or platforms that assist an organization develop. To get into top-tier alternatives, you have to supply one thing greater than a examine. - Be affected person.
When you safe an allocation, you fund capital calls, present assist the place doable, and wait—typically 5 to 10 years—for liquidity occasions.
Another method, and the one I’m pursuing extra now, is to spend money on an open-ended venture fund that already owns non-public firms I need publicity to. With no gatekeeping or throttled allocations, I can determine when and the way a lot to speculate. If I ever want liquidity, I can promote shares.
Not Collaborating In The Starvation Video games for IPOs
I doubt most retail buyers had even heard of Figma earlier than its IPO. However I’m assured much more folks know OpenAI, Anthropic, Databricks, and Anduril. If and when these firms go public, I anticipate their IPOs will probably be simply as oversubscribed as Figma’s.
As a personal investor in these names by Fundrise Venture, I can’t must beg for IPO shares. I’ll already personal them. Once they go public, I will probably be on the receiving finish of the liquidity occasion, not chasing it within the open market. I vastly desire this place. And the superb factor is, all people can place themselves in the identical means given anyone can spend money on Fundrise Enterprise. It is simply that not all people pays consideration or reads websites like Monetary Samurai.
The distinction in alternative between non-public and public investing is staggering. And I don’t anticipate that hole to shut anytime quickly, as a result of most individuals keep on with index funds and ETFs. That’s completely advantageous as it is a confirmed path to regular wealth constructing. However I benefit from the calculated threat of chasing multi-baggers.
I caught my first one in the course of the Dotcom bubble in 2000, when a 50x return in VCSY gave me the down fee for my first San Francisco property in 2003. That win opened my eyes to what’s doable. I’ve had loads of losers too, however that’s a part of the sport if you attain for outsized returns.
Chasing Scorching IPOs Is a Powerful Technique to Make Cash
Attempting to get a significant allocation in a sizzling IPO as a retail investor is like bidding on a completely reworked, panoramic view house on a triple-size lot in probably the most fascinating neighborhood. Everybody desires it, and the chances are stacked in opposition to you in a crazy bidding war.
In order for you higher odds, it’s essential to change your method. Which means gaining publicity earlier than the gang even is aware of the chance exists. As an alternative of ready for the new property to hit the market, why not ship personalised, handwritten letters to off-market house owners to see in the event that they’d be keen to promote? Or rent a high agent with entry to non-public listings for a primary look.
Outperforming in investing requires entry, persistence, and a willingness to take calculated dangers. Construct your community, create worth, and improve your popularity to achieve entry to non-public funding alternatives.
Or, you may skip all that and simply spend money on an open-ended enterprise fund which owns firms you need to spend money on.
After Figma, the following firm I’m most enthusiastic about seeing go public is Rippling, additionally based mostly in San Francisco. You’ve in all probability by no means heard of it both. It’s within the HR software program area. Nonetheless, for many who know the backstory, it’s an enchanting story of redemption and development. If it does IPO, I’ll make sure you share the way it goes!
Spend money on Non-public Development Firms
Firms are staying non-public longer, which suggests extra of the good points are going to early non-public buyers fairly than the general public. If you don’t want to combat within the “Starvation Video games” for a tiny IPO allocation, take into account the Fundrise Venture as a substitute.
Roughly 80 p.c of the Fundrise enterprise portfolio is in artificial intelligence, an space I’m extraordinarily bullish on. In 20 years, I are not looking for my youngsters asking why I didn’t spend money on AI or work in AI when the trade was nonetheless in its early phases.
The funding minimal is simply $10, in contrast with most conventional enterprise capital funds that require $200,000 or extra—and that’s for those who may even get in. With Fundrise Venture, it’s also possible to see precisely what the fund is holding earlier than deciding how a lot to speculate. You do not have to be an accredited investor both.
For brand new buyers, Fundrise presently presents a $100 bonus for those who make investments between $10,000 and $24,999, and a $500 bonus for those who make investments $25,000 or extra. I didn’t understand this till I opened a brand new private funding account earmarked for my youngsters, so I made a decision to speculate $26,000. That is on high of the ~$253,000 I’ve invested ($100,000 added in June 2025) by my company account.
Fundrise is a long-time sponsor of Monetary Samurai. I’m thrilled to have a accomplice I each consider in and spend money on myself. I’ve met with and spoken to Ben Miller, Fundrise’s cofounder and CEO, a number of instances, and our funding philosophies are intently aligned.
