After I labored in Equities at Goldman Sachs and Credit score Suisse, we’d often carry a sizzling IPO deal to market. Throughout the firm roadshow, we’d take administration round to fulfill one on one with our largest traders and shoppers. Typically the IPO was so in demand that many purchasers couldn’t even get a one on one, and as an alternative 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 let you know, that course of was harder than deciding which pals and kinfolk to depart off the visitor checklist for a restricted finances 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 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 may get 10 % of their request. However our greatest shoppers 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 typically an instantaneous pop within the share value, delivering immediate good points to those establishments. In different phrases, the wealthiest shoppers who paid essentially 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 Giant Allocation in a Sizzling IPO
Attempting to get a significant allocation in a sizzling IPO is a futile course of for the typical retail investor. With out monumental 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 just a few years earlier.
Figma and its e book runners allotted a tiny portion of shares to retail buying and selling platforms like Robinhood. Should you have been a Robinhood consumer, you could possibly point out your required allocation, however you’ll be crammed solely 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 received 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 possibly you have been luckier, and received 1 share out of a 600 indication of curiosity like this fella under. However who cares? 1 share would not do something for anyone at $33/share.
Examples like these are in all places. E-book 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.
Massive 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 doubtless carry out nicely as a result of they’d already seen sturdy demand from institutional shoppers keen to purchase at even larger costs.
If the bookrunners performed their allocation playing cards proper, they enriched their most precious 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 isn’t written down anyplace, however that’s how enterprise is finished. You deal with your shoppers, and your shoppers deal with you. Think about getting a $10 million allocation and making $27 million in in the future. It is like free cash should you’re already a giant consumer.
The Johnny Come Recently 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 leap in. Why not? YOLO for even larger 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 outdoors occasions.
Say you acquire 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 % from that prime. That could be a tough trip for a brand new shareholder.
No one 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 could be a steep hill to climb for constructive 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
Up 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. Should you invested in Google throughout its IPO and held on till at this time, you’ll have clearly achieved very nicely.
However at this time, corporations are staying personal for longer with extra of the good points accruing to personal traders. In consequence, it is solely logical to allocate a bigger proportion of your investable capital to private growth companies. I goal for between 10 % to twenty %.
The Higher Technique to Put money into Sizzling IPO Firms
Do you need to struggle for IPO scraps and overpay as soon as a development firm goes public? Or would you relatively 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 understand there’s a extra strategic technique to achieve publicity earlier than an organization lists. A giant cause for that’s most individuals usually are not accredited investors and are subsequently locked out of personal firm and personal fund alternatives.
In case you are accredited and need to personal stakes in fast-growing personal corporations—many within the tech sector—you’ll be able to allocate a portion of your capital to venture capital funds.
The standard 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 earnings.
Even in enterprise funds, who you’re determines how a lot you’ll be able to 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 increase.
Sequoia Capital, among the best enterprise funds in historical past, is a major instance. Solely workers, jailed star founders like Sam Bankman-Fried, giant establishments, and shut family and friends usually 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 companies that backed Figma earlier than its IPO and the returns they noticed on the providing value. Most traders wouldn’t have had the possibility to take part in these funds. And even should you did, your allocation would rely closely on who you’re.
Each enterprise fund units apart a portion for family and friends as a goodwill gesture and strategic transfer. Fundraising might be robust, and getting on the capital desk of the subsequent sizzling startup is fiercely aggressive. If a VC is elevating a $500 million fund, they may earmark $50 million for family and friends.
A private finance blogger and two-time nationwide bestselling creator is perhaps 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 provided the possibility to speculate $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 turn into a serious 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 put money into future vintages will solely develop. The enterprise capital companies will then should resolve how giant a fund to lift and how one can allocate area amongst traders.
I’m personally invested in three vintages of one of many enterprise companies that backed Figma. Sadly, my funding quantities in every usually are not 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 Technique to Put money into 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 favor to speculate whereas the enterprise remains to be personal. As a personal investor, listed below are the important thing choices you will need to make:
- Select the fundraising stage correctly.
Not each personal firm makes it to an IPO or has an enriching liquidity occasion. Traditionally, Sequence B or C rounds have a tendency to supply one of the best steadiness between danger and reward for corporations that would finally go public. - Determine the precise firm or enterprise capital agency.
That is simpler than most individuals assume. Knowledge on VC agency efficiency and firm development is broadly accessible. The problem is gaining entry. Being an angel investor is extraordinarily tough given you typically do not get one of the best appears. - Community and supply worth.
Cash is ample. 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, you will need to provide 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.
Another method, and the one I’m pursuing extra now, is to put money into an open-ended venture fund that already owns personal 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 Collaborating 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 way more individuals know OpenAI, Anthropic, Databricks, and Anduril. If and when these corporations go public, I count on their IPOs shall be simply as oversubscribed as Figma’s.
As a personal investor in these names by way of Fundrise Venture, I can’t should 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 favor this place. And the superb factor is, everyone can place themselves in the identical approach given anyone can put money into Fundrise Enterprise.
The distinction in alternative between personal and public investing is staggering. And I don’t count on that hole to shut anytime quickly, as a result of most individuals keep on with 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 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 whenever you attain for outsized returns.
Chasing Sizzling 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 totally transformed, panoramic view house on a triple-size lot in essentially the most fascinating neighborhood—everybody needs it, and the percentages are stacked towards you.
If you’d like higher odds, you could change your method. Meaning 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 customized, 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 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 fame to achieve entry to personal funding alternatives.
Or, you’ll be able to skip all that and simply put money into an open-ended enterprise fund which owns corporations you need to put money into. For me, investing in personal corporations by way of selective enterprise capital funds is essentially 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 in all probability by no means heard of it. It’s within the HR software program area. Nonetheless, for many who know the backstory, it’s an interesting story of redemption and development. If it does IPO, I’ll you should definitely share the way it goes.
Put money into Non-public Development Firms
Firms are staying personal longer, which suggests extra of the good points are going to early personal traders relatively than the general public. If you don’t want to struggle within the “Starvation Video games” for a tiny IPO allocation, take into account the Fundrise Venture as an alternative.
Roughly 80 % of the Fundrise enterprise portfolio is in artificial intelligence, an space I’m extraordinarily bullish on. In 20 years, I don’t want my children asking why I did not put money into AI or work in AI when the trade was nonetheless in its early phases.
The funding minimal is just $10, in contrast with most conventional enterprise capital funds that require $200,000 or extra—and that’s should you may even get in. With Fundrise Venture, you too can see precisely what the fund is holding earlier than deciding how a lot to speculate.
For brand new traders, Fundrise at present affords a $100 bonus should you make investments between $10,000 and $24,999, and a $500 bonus should you make investments $25,000 or extra. I didn’t understand this till I opened a brand new private funding account 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 way of my company account.
Fundrise is a long-time sponsor of Monetary Samurai. I’m thrilled to have a associate 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 carefully aligned.
