Once I labored in Equities at Goldman Sachs and Credit score Suisse, we’d often carry a scorching IPO deal to market. Throughout the firm roadshow, we’d take administration round to satisfy one on one with our largest buyers and purchasers. Generally 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, purchasers would submit their indications of curiosity. Because the lead guide runner of the IPO, we determined how a lot of an allocation every shopper would get. And let me inform you, that course of was tougher than deciding which associates and family members to go away off the visitor checklist for a restricted funds marriage ceremony.
Some purchasers obtained zero shares, which made them understandably offended. However they had been zeroed as a result of they both did too little enterprise with us or had been recognized for flipping shares for a fast revenue quickly after buying and selling started. Suppose small hedge funds.
Different purchasers obtained excess of the typical allocation. If the IPO was ten occasions oversubscribed, the typical shopper may get 10 % of their request. However our greatest purchasers may get 30 % to 70 % of what they requested for, primarily based on the enterprise they generated. Suppose Capital Group, Constancy, and BlackRock.
When buying and selling started, there was usually a right away pop within the share worth, delivering on the spot positive factors to those establishments. In different phrases, the wealthiest purchasers who paid probably the most in charges usually obtained the biggest allocations and the best returns.
You Are Not Wealthy or Well-known Sufficient to Get a Giant Allocation in a Sizzling IPO
Making an attempt to get a significant allocation in a scorching IPO is a futile course of for the typical retail investor. With out huge wealth, fame, or connections, you merely haven’t any probability. Take Figma (FIG) for instance. The design firm raised $1.2 billion in its IPO, valuing it at $19.8 billion, the identical worth Adobe had tried to purchase the corporate for a number of years earlier.
Figma and its guide runners allotted a tiny portion of shares to retail buying and selling platforms like Robinhood. When you had been a Robinhood shopper, you may point out your required allocation, however you’ll be crammed totally at their discretion. With Figma’s IPO forty occasions oversubscribed—$48 billion in demand for $1.2 billion in shares—the typical allocation was simply 2.5 % of what was requested. In actuality, many retail buyers obtained 1 % or much less.
Think about requesting 1,000 shares price $33,000 and getting only one share price $33, like one investor under who had $10 million together with his dealer. What a slap within the face!
Or perhaps you had been luckier, and obtained 1 share out of a 600 indication of curiosity like this fella under. However who cares? 1 share does 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 a tendency to chop allocations even additional to offset the bluffing.
Huge Acquire On IPO Day
Figma’s IPO ended up popping by 333 % on its first day of buying and selling, closing at $122 a share. The bookrunners knew it could probably carry out properly as a result of they’d already seen robust demand from institutional purchasers prepared to purchase at even larger costs.
If the bookrunners performed their allocation playing cards proper, they enriched their most precious purchasers by giving them greater than the typical allocation and ensuring these purchasers knew it. In return, these purchasers ought to reward them with extra enterprise.
It isn’t written down anyplace, however that’s how enterprise is finished. You maintain your purchasers, and your purchasers maintain you. Think about getting a $10 million allocation and making $27 million in sooner or later. It is like free cash in case you’re already an enormous shopper.
The Johnny Come Currently IPO Investor
After a 333 % pop on day one, would you aggressively purchase a inventory buying and selling at ~600 occasions ahead earnings? In all probability 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 worth. As soon as an organization is public, the benefits and relative security of being an early investor vanish. You are actually on the mercy of market sentiment and unpredictable exterior occasions.
Say to procure Figma after its IPO leap to $122. The subsequent 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 % from that prime. That may be a tough journey for a brand new shareholder.
No one is aware of the place Figma’s share worth 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 occasions ahead P/E a number of. That may be a steep hill to climb for optimistic returns. The corporate now has to set formidable income and earnings targets and beat them constantly to justify that valuation.
Firms Are Staying Personal For Longer
Prior to now, 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 right this moment, you’ll have clearly completed very properly.
However right this moment, firms are staying non-public for longer with extra of the positive factors accruing to non-public buyers. Consequently, it is solely logical to allocate a bigger proportion of your investable capital to non-public development firms. I goal for between 10 % to twenty %.
The Higher Solution to Spend money on Sizzling IPO Firms
Do you wish to struggle 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 technique to acquire publicity earlier than an organization lists. A giant cause for that’s most individuals aren’t accredited buyers and are due to this fact locked out of personal firm and personal fund alternatives.
If you’re accredited and wish to personal stakes in fast-growing non-public firms—many within the tech sector—you possibly can allocate a portion of your capital to enterprise capital funds.
The normal mannequin usually requires a minimal funding of $100,000 to $200,000 and relationships with the fund’s normal companions to even get within the door. As soon as in, you typically commit capital over three years, hope the companions select correctly, and pay two to 3 % in annual charges plus 20 to 35 % of income.
Even in enterprise funds, who you might be determines how a lot you possibly can make investments. If a fund is run by a normal accomplice with a stellar observe document, demand to take a position can exceed the fund’s goal elevate.
Sequoia Capital, among the finest enterprise funds in historical past, is a chief instance. Solely staff, jailed star founders like Sam Bankman-Fried, giant establishments, and shut family and friends usually get in—and their allocations are nonetheless usually diminished.
The Enterprise Capital Funds That Invested in Figma
Listed below are a number of the VC companies that backed Figma earlier than its IPO and the returns they noticed on the providing worth. Most buyers wouldn’t have had the possibility to take part in these funds. And even in case you 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 subsequent scorching 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 creator is likely to be invited to take a position $150,000 in such a fund. That investor might add worth by selling the fund’s portfolio firms or aiding future fundraising.
In the meantime, the CEO of a public firm with a robust observe document of angel investing may very well be provided the possibility to take a position $1 million to $2 million in the identical fund. Their involvement elevates the fund’s profile, opens doorways to promising startups, and might even result in strategic partnerships. If acceptable, the CEO’s firm may even change into a serious shopper 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 put money into future vintages will solely develop. The enterprise capital companies will then must determine how giant a fund to boost and the way to allocate area amongst buyers.
I’m personally invested in three vintages of one of many enterprise companies that backed Figma. Sadly, my funding quantities in every aren’t giant 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, once I left my job.
The Higher Solution to Spend money on Firms With Promising IPOs
As a substitute of scrambling for scraps throughout an IPO or paying inflated costs as soon as an organization lists, I choose to take a position whereas the enterprise continues to be non-public. As a personal investor, listed below are the important thing choices you could make:
- Select the fundraising stage correctly.
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 one of the best steadiness between threat and reward for firms that might ultimately go public. - Establish the suitable firm or enterprise capital agency.
That is simpler than most individuals suppose. Information on VC agency efficiency and firm development is extensively accessible. The problem is gaining entry. Being an angel investor is extraordinarily tough given you usually do not get one of the best appears to be like. - Community and supply worth.
Cash is ample. What’s scarce is value-add capital—buyers who carry experience, connections, or platforms that assist an organization develop. To get into top-tier alternatives, you could provide one thing greater than a verify. - Be affected person.
When you safe an allocation, you fund capital calls, present help the place potential, and wait—usually 5 to 10 years—for liquidity occasions.
An alternate strategy, and the one I’m pursuing extra now, is to put money into an open-ended enterprise fund that already owns non-public firms I would like publicity to. With no gatekeeping or throttled allocations, I can determine when and the way a lot to take a position. 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 shall be simply as oversubscribed as Figma’s.
As a personal investor in these names by Fundrise Enterprise, I cannot must beg for IPO shares. I’ll already personal them. Once they go public, I shall be on the receiving finish of the liquidity occasion, not chasing it within the open market. I vastly choose this place. And the wonderful factor is, everyone can place themselves in the identical manner given anyone can put money into Fundrise Enterprise.
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 follow index funds and ETFs. That’s completely nice because it’s one 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 potential. I’ve had loads of losers too, however that’s a part of the sport once you attain for outsized returns.
Chasing Sizzling IPOs Is a Powerful Solution to Make Cash
Making an attempt to get a significant allocation in a scorching IPO as a retail investor is like bidding on a totally reworked, panoramic view house on a triple-size lot in probably the most fascinating neighborhood—everybody needs it, and the chances are stacked towards you.
If you’d like higher odds, you’ll want to change your strategy. Meaning gaining publicity earlier than the gang even is aware of the chance exists. As a substitute of ready for the new property to hit the market, why not ship customized, handwritten letters to off-market house owners to see in the event that they’d be prepared to promote? Or rent a prime agent with entry to non-public listings for a primary look.
Outperforming in investing requires entry, endurance, and a willingness to take calculated dangers. Construct your community, create worth, and improve your fame to achieve entry to non-public funding alternatives.
Or, you possibly can skip all that and simply put money into an open-ended enterprise fund which owns firms you wish to put money into. For me, investing in non-public firms by selective enterprise capital funds is probably the most strategic technique to place myself for the subsequent Figma.
After Figma, the subsequent firm I’m most enthusiastic about seeing go public is Rippling, additionally primarily based in San Francisco. You’ve most likely by no means heard of it. It’s within the HR software program area. Nevertheless, for individuals who know the backstory, it’s an interesting story of redemption and development. If it does IPO, I’ll be sure you share the way it goes.
Spend money on Personal Development Firms
Firms are staying non-public longer, which suggests extra of the positive factors are going to early non-public buyers fairly than the general public. If you do not need to struggle within the “Starvation Video games” for a tiny IPO allocation, take into account the Fundrise Enterprise as a substitute.
Roughly 80 % of the Fundrise enterprise portfolio is in synthetic intelligence, an space I’m extraordinarily bullish on. In 20 years, I don’t want my youngsters asking why I didn’t put money into AI or work in AI when the business was nonetheless in its early levels.
The funding minimal is simply $10, in contrast with most conventional enterprise capital funds that require $200,000 or extra—and that’s in case you may even get in. With Fundrise Enterprise, it’s also possible to see precisely what the fund is holding earlier than deciding how a lot to take a position.
For brand spanking new buyers, Fundrise at present affords a $100 bonus in case you make investments between $10,000 and $24,999, and a $500 bonus in case you make investments $25,000 or extra. I didn’t understand this till I opened a brand new private funding account for my youngsters, so I made a decision to take a position $26,000. That is on prime 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 imagine in and put money into myself. I’ve met with and spoken to Ben Miller, Fundrise’s cofounder and CEO, a number of occasions, and our funding philosophies are intently aligned.
