After I labored at Goldman Sachs and Credit score Suisse, we might sometimes convey 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 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 e-book 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 pals and kin to go away off the visitor record for a restricted funds wedding ceremony.
Some purchasers acquired 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 recognized for flipping shares for a fast revenue quickly after buying and selling started. Assume small hedge funds.
Different purchasers obtained way over the common allocation. If the IPO was ten occasions oversubscribed, the common consumer would possibly get 10 p.c of their request. However our greatest purchasers would possibly get 30 p.c to 70 p.c of what they requested for, based mostly on the enterprise they generated. Assume Capital Group, Constancy, and BlackRock.
When buying and selling started, there was typically a right away pop within the share value, delivering prompt good points to those establishments. In different phrases, the wealthiest purchasers who paid probably the most in charges typically acquired 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
Attempting to get a significant allocation in a scorching IPO is a futile course of for the common retail investor. With out monumental 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 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. For those who have been a Robinhood consumer, you could possibly point out your required allocation, however you’d be crammed solely at their discretion. With Figma’s IPO forty occasions oversubscribed—$48 billion in demand for $1.2 billion in shares—the common allocation was simply 2.5 p.c of what was requested. In actuality, many retail buyers acquired 1 p.c 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 acquired 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 in all places. E-book runners know that many consumers and people play the sport of inflating their indications of curiosity, so they have an inclination to chop allocations even additional to offset the bluffing.
Large Achieve On IPO Day
Figma’s IPO ended up popping by 333 p.c on its first day of buying and selling, closing at $122 a share. The bookrunners knew it will possible carry out nicely as a result of they’d already seen sturdy demand from institutional purchasers keen to purchase at even greater costs.
If the bookrunners performed their allocation playing cards proper, they enriched their most respected purchasers by giving them greater than the common 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 completed. You maintain your purchasers, and your purchasers maintain you. Think about getting a $10 million allocation and making $27 million in in the future. It is like free cash in case you’re already an enormous consumer.
The Johnny Come Recently IPO Investor
After a 333 p.c 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 bounce in. Why not? YOLO for even higher 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 obtain Figma after its IPO bounce to $122. The following 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 p.c from that prime. That may be a tough journey 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 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 constructive returns. The corporate now has to set formidable income and earnings targets and beat them constantly to justify that valuation.
Corporations Are Staying Personal 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. For those who invested in Google throughout its IPO and held on till in the present day, you’d have clearly accomplished very nicely.
However in the present day, corporations are staying non-public for longer with extra of the good points accruing to non-public buyers. Because of this, it is solely logical to allocate a bigger share of your investable capital to non-public progress corporations. I purpose for between 10 p.c to twenty p.c.
The Higher Approach to Put money into Scorching IPO Corporations
Do you need to combat for IPO scraps and overpay as soon as a progress 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 truth is that many buyers both don’t perceive how the IPO course of works or don’t notice there’s a extra strategic technique to achieve publicity earlier than an organization lists. A giant motive for that’s most individuals will not be accredited buyers and are due to this fact locked out of personal firm and personal fund alternatives.
If you’re accredited and need 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 normal mannequin sometimes requires a minimal funding of $100,000 to $200,000 and relationships with the fund’s basic 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 a few p.c in annual charges plus 20 to 35 p.c 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 basic associate with a stellar monitor 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 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 decreased.
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 buyers 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 could be robust, and getting on the capital desk of the subsequent scorching 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 likely to be invited to take a position $150,000 in such a fund. That investor may add worth by selling the fund’s portfolio corporations or aiding future fundraising.
In the meantime, the CEO of a public firm with a powerful monitor document of angel investing may very well be provided the prospect 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 would possibly even turn out to be a significant 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 should resolve how massive a fund to lift and how you can allocate house amongst buyers.
I’m personally invested in three vintages of one of many enterprise companies that backed Figma. Sadly, my funding quantities in every will not be massive 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, once I left my job.
The Higher Approach to Put money into Corporations With Promising IPOs
As a substitute of scrambling for scraps throughout an IPO or paying inflated costs as soon as an organization lists, I favor to take a position whereas the enterprise remains to be non-public. As a non-public investor, listed here are the important thing selections you need to make:
- Select the fundraising stage properly.
Not each non-public firm makes it to an IPO or has an enriching liquidity occasion. Traditionally, Sequence B or C rounds have a tendency to supply the perfect steadiness between threat and reward for corporations that would finally go public. - Determine the proper firm or enterprise capital agency.
That is simpler than most individuals assume. Information on VC agency efficiency and firm progress is broadly obtainable. The problem is gaining entry. Being an angel investor is extraordinarily troublesome given you typically do not get the perfect appears to be like. - Community and supply worth.
Cash is plentiful. What’s scarce is value-add capital—buyers who convey experience, connections, or platforms that assist an organization develop. To get into top-tier alternatives, you need to provide one thing greater than a examine. - 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 strategy, 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 would like publicity to. With no gatekeeping or throttled allocations, I can resolve when and the way a lot to take a position. If I ever want liquidity, I can promote shares.
Not Taking part 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 way more folks know OpenAI, Anthropic, Databricks, and Anduril. If and when these corporations go public, I count on their IPOs can be simply as oversubscribed as Figma’s.
As a non-public investor in these names by Fundrise Enterprise, I cannot should 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 favor this place. And the superb 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 positive as it is a confirmed path to regular wealth constructing. However I benefit from the calculated threat 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 fee 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 Approach 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 probably the most fascinating neighborhood. Everybody desires it, and the percentages are stacked in opposition to you in a loopy bidding battle.
If you’d like higher odds, you might 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 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 fame to realize entry to non-public funding alternatives.
Or, you may skip all that and simply put money into an open-ended enterprise fund which owns corporations you need to put money into.
After Figma, the subsequent firm I’m most enthusiastic about seeing go public is Rippling, additionally based mostly in San Francisco. You’ve most likely 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 progress. If it does IPO, I’ll remember to share the way it goes!
Put money into Personal Development Corporations
Corporations are staying non-public longer, which implies extra of the good points are going to early non-public buyers fairly than the general public. If you don’t want to combat within the “Starvation Video games” for a tiny IPO allocation, take into account the Fundrise Enterprise as a substitute.
Roughly 80 p.c 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 trade was nonetheless in its early phases.
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, you can too see precisely what the fund is holding earlier than deciding how a lot to take a position. You do not have to be an accredited investor both.
For brand spanking new buyers, Fundrise presently provides 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 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 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 intently aligned.
