Once I labored in Equities at Goldman Sachs and Credit score Suisse, we might sometimes deliver a sizzling IPO deal to market. Throughout the firm roadshow, we’d take administration round to fulfill one on one with our largest buyers and purchasers. Generally 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 bunch 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 shopper would get. And let me let you know, that course of was tougher than deciding which pals and family to depart off the visitor record for a restricted finances marriage ceremony.
Some purchasers received zero shares, which made them understandably offended. 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 shopper may get 10 p.c of their request. However our greatest purchasers may get 30 p.c to 70 p.c of what they requested for, primarily based on the enterprise they generated. Assume Capital Group, Constancy, and BlackRock.
When buying and selling started, there was usually a direct pop within the share value, delivering instantaneous features to those establishments. In different phrases, the wealthiest purchasers who paid essentially the most in charges usually received the most important 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 sizzling IPO is a futile course of for the common 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 a number of years earlier.
Figma and its e-book runners allotted a tiny portion of shares to retail buying and selling platforms like Robinhood. In case you have been a Robinhood shopper, you might 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 common allocation was simply 2.5 p.c of what was requested. In actuality, many retail buyers received 1 p.c 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 have been luckier, and received 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. E-book runners know that many purchasers 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 Acquire 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 properly as a result of they’d already seen sturdy demand from institutional purchasers keen to purchase at even increased costs.
If the bookrunners performed their allocation playing cards proper, they enriched their most precious 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’s not written down anyplace, however that’s how enterprise is finished. You handle your purchasers, and your purchasers handle you. Think about getting a $10 million allocation and making $27 million in someday. It is like free cash should you’re already a giant shopper.
The Johnny Come Currently 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 soar 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 purchased Figma after its IPO soar 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 p.c from that top. That could 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 value 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 Personal For Longer
Prior 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. In case you invested in Google throughout its IPO and held on till at this time, you’ll have clearly accomplished very properly.
However at this time, corporations are staying non-public for longer with extra of the features accruing to non-public buyers. Because of this, it is solely logical to allocate a bigger share of your investable capital to non-public development corporations. I intention for between 10 p.c to twenty p.c.
The Higher Solution 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 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 understand there’s a extra strategic technique to achieve publicity earlier than an organization lists. A giant purpose for that’s most individuals usually are not 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 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 properly, and pay two to 3 p.c in annual charges plus 20 to 35 p.c of income.
Even in enterprise funds, who you might be determines how a lot you may make investments. If a fund is run by a normal accomplice with a stellar observe report, demand to speculate can exceed the fund’s goal increase.
Sequoia Capital, among the finest enterprise funds in historical past, is a major instance. Solely workers, jailed star founders like Sam Bankman-Fried, massive establishments, and shut family and friends usually get in—and their allocations are nonetheless usually lowered.
The Enterprise Capital Funds That Invested in Figma
Listed below are among 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 possibility 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 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 likely to be invited to speculate $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 observe report of angel investing may very well be supplied 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 applicable, the CEO’s firm may even grow to be a serious shopper 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 spend money on future vintages will solely develop. The enterprise capital companies will then should resolve how massive a fund to lift and how you can allocate area amongst buyers.
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 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 Solution to Put money into Firms 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 speculate whereas the enterprise remains to be non-public. As a personal investor, listed here are the important thing choices you will 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, Collection B or C rounds have a tendency to supply the very best stability between danger and reward for corporations that might ultimately go public. - Determine the appropriate 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 troublesome given you usually do not get the very best appears. - Community and supply worth.
Cash is considerable. What’s scarce is value-add capital—buyers who deliver experience, connections, or platforms that assist an organization develop. To get into top-tier alternatives, you will need to supply one thing greater than a verify. - Be affected person.
When you safe an allocation, you fund capital calls, present help the place doable, and wait—usually 5 to 10 years—for liquidity occasions.
Another strategy, and the one I’m pursuing extra now, is to spend money on 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 Collaborating 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 much more folks know OpenAI, Anthropic, Databricks, and Anduril. If and when these corporations go public, I count on their IPOs will likely be simply as oversubscribed as Figma’s.
As a personal investor in these names via Fundrise Enterprise, I cannot should beg for IPO shares. I’ll already personal them. After they go public, I will likely 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 spend money on Fundrise Enterprise.
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 stick with index funds and ETFs. That’s completely wonderful 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 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 whenever you attain for outsized returns.
Chasing Sizzling IPOs Is a Powerful Solution to Make Cash
Attempting 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 needs it, and the percentages are stacked in opposition to you.
If you need higher odds, it’s essential change your strategy. Which means gaining publicity earlier than the group even is aware of the chance exists. As a substitute 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 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 spend money on an open-ended enterprise fund which owns corporations you need to spend money on. For me, investing in non-public corporations via 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. Nevertheless, 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.
Put money into Personal Development Firms
Firms are staying non-public longer, which implies extra of the features are going to early non-public buyers fairly 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 an alternative.
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 children asking why I didn’t 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 can even see precisely what the fund is holding earlier than deciding how a lot to speculate.
For brand new buyers, 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 prime of the ~$253,000 I’ve invested ($100,000 added in June 2025) via my company account.
Fundrise is a long-time sponsor of Monetary Samurai. I’m thrilled to have a accomplice I each consider in and spend money on 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.
