After I labored at Goldman Sachs and Credit score Suisse, we’d often deliver 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 shoppers. Generally the IPO was so in demand that many consumers 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 tougher than deciding which pals and relations to depart off the visitor listing for a restricted funds wedding ceremony.
Some shoppers bought 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 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 largest shoppers may get 30 % to 70 % of what they requested for, based mostly on the enterprise they generated. Suppose Capital Group, Constancy, and BlackRock.
When buying and selling started, there was usually a right away pop within the share value, delivering immediate good points to those establishments. In different phrases, the wealthiest shoppers who paid probably the most in charges usually bought 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
Making an attempt 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 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 a couple of years earlier.
Figma and its e book runners allotted a tiny portion of shares to retail buying and selling platforms like Robinhood. In the event you had been a Robinhood consumer, you could possibly point out your required allocation, however you’d be stuffed totally 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 bought 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 along with his dealer. What a slap within the face!
Or possibly you had been luckier, and bought 1 share out of a 600 indication of curiosity like this fella beneath. 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 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 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 effectively as a result of that they had already seen robust demand from institutional shoppers keen to purchase at even larger costs.
If the bookrunners performed their allocation playing cards proper, they enriched their most respected 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 wherever, however that’s how enterprise is finished. You handle your shoppers, and your shoppers handle 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 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 soar 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 at the moment are on the mercy of market sentiment and unpredictable exterior occasions.
Say you obtain Figma after its IPO soar 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 % from that prime. That may 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 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 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. In the event you invested in Google throughout its IPO and held on till as we speak, you’d have clearly accomplished very effectively.
However as we speak, corporations are staying non-public for longer with extra of the good points accruing to personal traders. In consequence, it is solely logical to allocate a bigger share of your investable capital to non-public progress corporations. I intention for between 10 % to twenty %.
The Higher Technique to Spend money on Sizzling IPO Corporations
Do you need to struggle for IPO scraps and overpay as soon as a progress firm goes public? Or would you quite 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 method to acquire publicity earlier than an organization lists. A giant cause for that’s most individuals are usually not 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 corporations—many within the tech sector—you possibly can 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 a few % in annual charges plus 20 to 35 % of income.
Even in enterprise funds, who you’re determines how a lot you possibly can make investments. If a fund is run by a normal accomplice with a stellar monitor report, demand to take a position can exceed the fund’s goal elevate.
Sequoia Capital, the most effective enterprise funds in historical past, is a chief instance. Solely staff, 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 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 prospect to take part in these funds. And even in case 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 will be robust, and getting on the capital desk of the following 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 writer could be invited to take a position $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 report 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 may even develop into a significant 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 spend money on future vintages will solely develop. The enterprise capital companies will then need to resolve how massive a fund to lift and learn how to allocate house amongst traders.
I’m personally invested in three vintages of one of many enterprise companies that backed Figma. Sadly, my funding quantities in every are usually 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 Technique to Spend money on 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 favor to take a position whereas the enterprise continues to be non-public. As a non-public investor, listed here are the important thing selections you could 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 very best stability between danger and reward for corporations that might finally go public. - Establish the suitable firm or enterprise capital agency.
That is simpler than most individuals suppose. 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 usually do not get the very best appears to be like. - Community and supply worth.
Cash is plentiful. What’s scarce is value-add capital—traders who deliver experience, connections, or platforms that assist an organization develop. To get into top-tier alternatives, you could supply 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—usually 5 to 10 years—for liquidity occasions.
An alternate method, 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 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 traders 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 probably be simply as oversubscribed as Figma’s.
As a non-public investor in these names via Fundrise Enterprise, I cannot need to beg for IPO shares. I’ll already personal them. Once they go public, I will probably 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 means 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 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 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 throughout 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 Technique to Make Cash
Making an attempt to get a significant allocation in a scorching IPO as a retail investor is like bidding on a totally transformed, panoramic view dwelling on a triple-size lot in probably the most fascinating neighborhood. Everybody needs it, and the chances are stacked towards you in a loopy bidding warfare.
If you would like higher odds, it’s essential to change your method. Which means gaining publicity earlier than the gang even is aware of the chance exists. As an alternative 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 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 popularity to achieve entry to personal funding alternatives.
Or, you possibly can skip all that and simply spend money on an open-ended enterprise fund which owns corporations you need to spend money on.
After Figma, the following 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. Nevertheless, for individuals who know the backstory, it’s a captivating story of redemption and progress. If it does IPO, I’ll you’ll want to share the way it goes!
Spend money on Non-public Progress Corporations
Corporations are staying non-public longer, which implies extra of the good points are going to early non-public traders quite than the general public. If you don’t want to struggle within the “Starvation Video games” for a tiny IPO allocation, contemplate the Fundrise Enterprise as an alternative.
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 barely $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 too can see precisely what the fund is holding earlier than deciding how a lot to take a position. You do not must be an accredited investor both.
For brand spanking new traders, Fundrise at the moment affords 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 understand this till I opened a brand new private funding account earmarked for my kids, 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) via my company account.
Fundrise is a long-time sponsor of Monetary Samurai. I’m thrilled to have a accomplice 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 occasions, and our funding philosophies are carefully aligned.
