After I labored at Goldman Sachs and Credit score Suisse, we’d sometimes convey a scorching IPO deal to market. Through the firm roadshow, we’d take administration round to satisfy one on one with our largest traders and purchasers. 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 gaggle breakfast, group lunch, or group dinner.
After assembly administration, purchasers would submit their indications of curiosity. Because the lead ebook runner of the IPO, we determined how a lot of an allocation every shopper would get. And let me let you know, that course of was harder than deciding which mates and family to go away off the visitor listing for a restricted finances wedding ceremony.
Some purchasers obtained 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 purchasers acquired excess of the typical allocation. If the IPO was ten instances oversubscribed, the typical shopper would possibly get 10 % of their request. However our greatest purchasers 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 a direct pop within the share worth, delivering immediate positive factors to those establishments. In different phrases, the wealthiest purchasers who paid essentially the most in charges typically obtained the biggest allocations and the best returns.
You Are Not Wealthy or Well-known Sufficient to Get a Massive Allocation in a Sizzling IPO
Attempting 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 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 worth Adobe had tried to purchase the corporate for just a few years earlier.
Figma and its ebook runners allotted a tiny portion of shares to retail buying and selling platforms like Robinhood. If you happen to had been a Robinhood shopper, you could possibly point out your required allocation, however you’ll be stuffed fully at their discretion. With Figma’s IPO forty instances 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 obtained 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 perhaps you had been luckier, and obtained 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 in every single place. E-book 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.
Massive Achieve 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 doubtless carry out nicely as a result of that they had already seen robust demand from institutional purchasers keen to purchase at even greater costs.
If the bookrunners performed their allocation playing cards proper, they enriched their most dear 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’s not written down wherever, however that’s how enterprise is completed. You handle your purchasers, and your purchasers handle you. Think about getting a $10 million allocation and making $27 million in at some point. It is like free cash should you’re already a giant shopper.
The Johnny Come Recently IPO Investor
After a 333 % 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 traders get swept up within the hype and bounce 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 at the moment are on the mercy of market sentiment and unpredictable outdoors occasions.
Say to procure Figma after its IPO bounce to $122. The subsequent morning you may 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 trip 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 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 persistently to justify that valuation.
Corporations Are Staying Non-public For Longer
Prior to now, investing in an organization throughout its IPO was safer. For instance, Google was a non-public firm for six years (9/1998 – 8/2004) earlier than it IPOed, elevating $1.67 billion at a $23 billion valuation. If you happen to invested in Google throughout its IPO and held on till at present, you’ll have clearly executed very nicely.
However at present, firms are staying non-public for longer with extra of the positive factors accruing to non-public traders. Consequently, it is solely logical to allocate a bigger share of your investable capital to non-public development firms. I goal for between 10 % to twenty %.
The Higher Option to Put money into Sizzling IPO Corporations
Do you need to battle for IPO scraps and overpay as soon as a development firm goes public? Or would you somewhat personal shares earlier than the general public bidding frenzy even begins? Most rational folks 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 strategy to achieve publicity earlier than an organization lists. A giant cause for that’s most individuals aren’t accredited traders and are subsequently 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’ll be able to allocate a portion of your capital to enterprise capital funds.
The normal mannequin sometimes requires a minimal funding of $100,000 to $200,000 and relationships with the fund’s common companions to even get within the door. As soon as in, you usually commit capital over three years, hope the companions select correctly, and pay two to a few % in annual charges plus 20 to 35 % of income.
Even in enterprise funds, who you might be determines how a lot you’ll be able to make investments. If a fund is run by a common associate with a stellar monitor file, demand to speculate can exceed the fund’s goal increase.
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 sometimes get in—and their allocations are nonetheless typically diminished.
The Enterprise Capital Funds That Invested in Figma
Listed below are among the VC corporations that backed Figma earlier than its IPO and the returns they noticed on the providing worth. Most traders wouldn’t have had the prospect to take part in these funds. And even should 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 will 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 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 robust monitor file of angel investing may very well be provided 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 into a significant shopper 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 spend money on future vintages will solely develop. The enterprise capital corporations will then must determine how giant a fund to boost and the way to allocate house amongst traders.
I’m personally invested in three vintages of one of many enterprise corporations that backed Figma. Sadly, my funding quantities in every aren’t giant sufficient to create really 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 Option to Put money into Corporations 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 non-public investor, listed here 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 danger and reward for firms that would ultimately go public. - Determine the correct firm or enterprise capital agency.
That is simpler than most individuals suppose. Knowledge on VC agency efficiency and firm development is broadly out there. The problem is gaining entry. Being an angel investor is extraordinarily tough given you typically do not get one of the best seems. - Community and supply worth.
Cash is considerable. What’s scarce is value-add capital—traders who convey 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—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 enterprise 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 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 way more folks know OpenAI, Anthropic, Databricks, and Anduril. If and when these firms go public, I anticipate their IPOs can be simply as oversubscribed as Figma’s.
As a non-public investor in these names by way of Fundrise Enterprise, I cannot must beg for IPO shares. I’ll already personal them. Once they go public, I can 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 manner 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 persist 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 danger of chasing multi-baggers.
I caught my first one through 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 potential. I’ve had loads of losers too, however that’s a part of the sport while you attain for outsized returns.
Chasing Sizzling IPOs Is a Robust Option to Make Cash
Attempting to get a significant allocation in a scorching IPO as a retail investor is like bidding on a totally reworked, panoramic view residence on a triple-size lot in essentially the most fascinating neighborhood. Everybody desires it, and the chances are stacked towards you in a loopy bidding battle.
In order for you higher odds, it’s essential change your method. Meaning gaining publicity earlier than the group 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 homeowners to see in the event that they’d be keen to promote? Or rent a prime 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 status to achieve entry to non-public funding alternatives.
Or, you’ll be able to 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 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 an interesting story of redemption and development. If it does IPO, I’ll make sure to share the way it goes!
Put money into Non-public Development Corporations
Corporations are staying non-public longer, which implies extra of the positive factors are going to early non-public traders somewhat than the general public. If you do not need to battle 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 children asking why I did not spend money on 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 Enterprise, you may also see precisely what the fund is holding earlier than deciding how a lot to speculate. You do not must be an accredited investor both.
For brand new traders, Fundrise presently 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 earmarked for my kids, so I made a decision to speculate $26,000. That is on prime 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 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 carefully aligned.
