Once I labored at Goldman Sachs and Credit score Suisse, we’d often carry a sizzling IPO deal to market. Through the firm roadshow, we’d take administration round to satisfy one on one with our largest traders and shoppers. Typically the IPO was so in demand that many consumers couldn’t even get a one on one, and as a substitute needed to accept a bunch breakfast, group lunch, or group dinner.
After assembly administration, shoppers would submit their indications of curiosity. Because the lead ebook 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 associates and relations to go away off the visitor listing for a restricted finances wedding ceremony.
Some shoppers bought zero shares, which made them understandably indignant. However they had been zeroed as a result of they both did too little enterprise with us or had been identified for flipping shares for a fast revenue quickly after buying and selling started. Suppose small hedge funds.
Different shoppers obtained excess of the typical allocation. If the IPO was ten occasions oversubscribed, the typical consumer would possibly get 10 % of their request. However our greatest shoppers would possibly 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 typically an instantaneous pop within the share value, delivering instantaneous beneficial properties to those establishments. In different phrases, the wealthiest shoppers who paid essentially the most in charges typically bought 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
Making an attempt to get a significant allocation in a sizzling IPO is a futile course of for the typical retail investor. With out huge wealth, fame, or connections, you merely haven’t 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 ebook runners allotted a tiny portion of shares to retail buying and selling platforms like Robinhood. When you had been a Robinhood consumer, 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 traders bought 1 % 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 together with his dealer. What a slap within the face!
Or possibly you had been luckier, and bought 1 share out of a 600 indication of curiosity like this fella beneath. 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 consumers 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 will seemingly carry out nicely as a result of that they had already seen sturdy demand from institutional shoppers prepared to purchase at even larger costs.
If the bookrunners performed their allocation playing cards proper, they enriched their most beneficial shoppers by giving them greater than the typical 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 completed. You deal with your shoppers, and your shoppers deal with 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 a giant consumer.
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 traders get swept up within the hype and soar in. Why not? YOLO for even better 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 are actually on the mercy of market sentiment and unpredictable exterior occasions.
Say you got Figma after its IPO soar to $122. The subsequent morning you might need been thrilled to see it spike to $133. However by the tip of the day, it had fallen greater than 20 % from that top. The inventory is now down 45% from its all-time excessive. 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 price 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 constructive returns. The corporate now has to set bold income and earnings targets and beat them persistently to justify that valuation.
Firms Are Staying Personal 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 at this time, you’ll have clearly completed very nicely.
However at this time, corporations are staying non-public for longer with extra of the beneficial properties accruing to personal traders. OpenAI, for instance, is valued at a reported $500 billion on the time of this publish. Consequently, it is solely logical to allocate a bigger proportion of your investable capital to non-public development corporations. I purpose for between 10 % to twenty %.
The Higher Strategy to Spend money on Scorching IPO Firms
Do you wish to struggle for IPO scraps and overpay as soon as a development firm goes public? Or would you reasonably personal shares earlier than the general public bidding frenzy even begins? Most rational individuals would select the latter.
The truth is that many traders both don’t perceive how the IPO course of works or don’t notice there’s a extra strategic technique to acquire publicity earlier than an organization lists. A giant purpose for that’s most individuals aren’t accredited traders and are subsequently locked out of personal firm and personal fund alternatives.
In case you are accredited and wish to personal stakes in fast-growing non-public corporations—many within the tech sector—you may allocate a portion of your capital to enterprise capital funds.
The standard mannequin sometimes 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 properly, and pay two to 3 % in annual charges plus 20 to 35 % of earnings.
Even in enterprise funds, who you might be determines how a lot you may make investments. If a fund is run by a normal associate with a stellar monitor 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 staff, jailed star founders like Sam Bankman-Fried, massive establishments, and shut family and friends sometimes get in—and their allocations are nonetheless typically lowered.
The Enterprise Capital Funds That Invested in Figma
Listed below are a few of the VC companies that backed Figma earlier than its IPO and the returns they noticed on the providing value. Most traders wouldn’t have had the prospect 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 may be powerful, and getting on the capital desk of the subsequent 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 may be invited to speculate $150,000 in such a fund. That investor might add worth by selling the fund’s portfolio corporations or aiding future fundraising.
In the meantime, the CEO of a public firm with a robust monitor document of angel investing could possibly 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 acceptable, the CEO’s firm would possibly even develop into a serious consumer for one of many fund’s investments, e.g. Microsoft being an investor and buyer of OpenAI.
Demand For Turning 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 need to resolve how massive a fund to lift and the best way to allocate house amongst traders.
I’m personally invested in three vintages of one of many enterprise companies that backed Figma. Sadly, my funding quantities in every aren’t 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 Strategy 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 continues to be non-public. As a personal investor, listed below are the important thing selections it’s essential 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 danger and reward for corporations that might ultimately go public. - Determine the correct firm or enterprise capital agency.
That is simpler than most individuals suppose. Information on VC agency efficiency and firm development is broadly obtainable. The problem is gaining entry. Being an angel investor is extraordinarily tough given you typically do not get the most effective seems. - Community and supply worth.
Cash is considerable. What’s scarce is value-add capital—traders who carry experience, connections, or platforms that assist an organization develop. To get into top-tier alternatives, it’s essential to supply one thing greater than a test. - 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.
An alternate method, and the one I’m pursuing extra now, is to put money into an open-ended enterprise fund that already owns non-public corporations I need publicity to. With no gatekeeping or throttled allocations, I can resolve when and the way a lot to speculate. If I ever want liquidity, I can promote shares.
Not Taking part In The Starvation Video games for IPOs
I doubt most retail traders had even heard of Figma earlier than its IPO. However I’m assured much more individuals know OpenAI, Anthropic, Databricks, and Anduril. If and when these corporations go public, I count on their IPOs might be simply as oversubscribed as Figma’s.
As a personal investor in these names by Fundrise Enterprise, I can’t need to beg for IPO shares. I’ll already personal them. After they go public, I might be on the receiving finish of the liquidity occasion, not chasing it within the open market. I vastly desire this place. And the wonderful factor is, all people can place themselves in the identical approach given anyone can put money into 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 count on that hole to shut anytime quickly, as a result of most individuals follow index funds and ETFs. That’s completely fantastic as it is a confirmed path to regular wealth constructing. However I benefit from the calculated danger 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 cost 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 once you attain for outsized returns.
Chasing Scorching IPOs Is a Powerful Strategy to Make Cash
Making an attempt to get a significant allocation in a sizzling IPO as a retail investor is like bidding on a completely reworked, panoramic view residence on a triple-size lot in essentially the most fascinating neighborhood. Everybody desires it, and the percentages are stacked in opposition to you in a loopy bidding struggle.
If you would like higher odds, you might want 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 recent property to hit the market, why not ship customized, handwritten letters to off-market homeowners to see in the event that they’d be prepared to promote? Or rent a high agent with entry to personal 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 repute to achieve entry to personal funding alternatives.
Or, you may skip all that and simply put money into an open-ended enterprise fund which owns corporations you wish to put money into.
After Figma, the subsequent firm I’m most enthusiastic about seeing go public is Rippling, additionally primarily based in San Francisco. You’ve in all probability by no means heard of it both. It’s within the HR software program house. Nonetheless, for individuals who know the backstory, it’s a captivating story of redemption and development. If it does IPO, I’ll be sure you share the way it goes!
Spend money on Personal Progress Firms
Firms are staying non-public longer, which implies extra of the beneficial properties are going to early non-public traders reasonably than the general public. If you don’t want to struggle within the “Starvation Video games” for a tiny IPO allocation, think about 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 did not put money into AI or work in AI when the trade was nonetheless in its early levels.
The funding minimal is just $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, you can even 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 traders, Fundrise at present presents 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 notice this till I opened a brand new private funding account earmarked for my kids, 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 associate I each consider 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 carefully aligned.
