Robinhood Will Allow Its Platform Users To Buy Shares Before IPO

Robinhood is launching a new product, IPO Access, which aims to “democratize IPOs” by allowing ordinary users to invest in companies before going public.

Robinhood, whose stock trading app revolutionized access to Wall Street for ordinary Americans on small budgets, began a phased launch of a new product called IPO Access on Thursday.

IPO Access gives users the ability to buy shares prior to their initial public offering (IPO) on the exchange at the IPO price (the price set before the start of trading on the exchange).

Previously, only institutional investors – large banks and firms – had such an opportunity, while retail investors bought shares from the first day of trading.

However, on the first day of trading, the price tends to rise significantly as retail investors get the first opportunity to buy these new shares.

According to research firm Dealogic, in 2020, the price of shares on the first day of IPOs of new publicly traded companies increased by an average of 36%.

“Most IPO shares usually go to institutions or wealthier investors. With IPO Access, ordinary investors in Robinhood will have a chance to get IPO at the IPO price, ”the company said in a blog post.

At the same time, Robinhood will not be an underwriter for IPO companies, but will work with Wall Street investment banks to raise funds for private investors.

Robinhood said that users on its platform will be able to participate in upcoming IPOs without a minimum account, and while the number of IPO shares available for purchase may be very limited, “all Robinhood customers have an equal chance of buying them regardless of order size or account amount” …

Robinhood also clarified how the buying process will proceed: “Interested users will need to submit a request to buy shares in the companies at the original listing price. Once the final price has been set, users will be able to view, modify or cancel their request before the shares are distributed to Robinhood customers. ”

FIGS Inc (FIGS) is the first company to offer its shares through the Robinhood IPO Access, limited to 1% of the FIGS IPO of 22.5 million shares.

“This is the first initial public offering to be included in the Robinhood platform and there may be risks associated with the use of the Robinhood platform that we cannot foresee, including risks associated with the technology and operation of the platform, as well as the publicity and use of social media by users of the platform. which we cannot control, ”the company warned.

On the IPO Access platform, users will be able to view preliminary reports of companies preparing for an IPO to learn about the business model, management team and risk factors.

It is unclear if Robinhood’s clients will be able to invest in Robinhood’s upcoming IPO, the company filed a confidential S-1 filing with the SEC on March 23. The stock trading app is expected to go public in the first half of 2021, most likely at the end of June. For more information on the upcoming IPO, see article “Robinhood Confidentially Filed an IPO – Should You Buy Shares?”

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