Robinhood is launching a new IPO Access product that aims to "democratise IPOs" by allowing ordinary users to invest in companies' shares before they go public.
Robinhood, whose stock trading app has revolutionised access to Wall Street for ordinary Americans on small budgets, on Thursday launched a phased-in launch of a new product called IPO Access.
IPO Access gives users the ability to buy shares before their initial public offering (IPO) on the stock 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 this option, while retail investors bought shares from the first day of trading. However, on the first day of trading, the price typically rises significantly as retail investors get their first opportunity to buy these new shares.
According to research firm Dealogic, the share price on the first day of IPOs of newly public companies rose by an average of 36% in 2020.
That said, Robinhood will not be an underwriter for companies going public, but will work with Wall Street investment banks to get funds to private investors. Robinhood has stated 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 get an equal chance to buy them regardless of warrant size or account amount".
It is worth noting that FIGS Inc (FIGS) has become the first company to offer its shares through Robinhood IPO Access, their number will be limited: 1% of the FIGS IPO consisting of 22.5 million shares.
On the IPO Access platform, users will be able to view pre-IPO company reports to learn about the business model, management team and risk factors.