After I labored at Goldman Sachs and Credit score Suisse, we might often deliver a scorching IPO deal to market. Through the firm roadshow, we’d take administration round to fulfill one on one with our largest buyers and shoppers. 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, 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 shopper would get. And let me inform you, that course of was harder than deciding which associates and family to depart off the visitor listing for a restricted funds wedding ceremony.
Some shoppers received 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. Assume small hedge funds.
Different shoppers obtained way over the typical allocation. If the IPO was ten instances oversubscribed, the typical shopper may get 10 p.c of their request. However our largest shoppers may 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 an instantaneous pop within the share worth, delivering on the spot features to those establishments. In different phrases, the wealthiest shoppers who paid probably the most in charges typically received the most important allocations and the best returns.
You Are Not Wealthy or Well-known Sufficient to Get a Giant 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 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 worth 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 case you had been a Robinhood shopper, you possibly can 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 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 along with his dealer. What a slap within the face!
Or possibly you had 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. Guide 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.
Huge 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 might seemingly carry out properly as a result of that they had already seen sturdy demand from institutional shoppers keen to purchase at even greater costs.
If the bookrunners performed their allocation playing cards proper, they enriched their most beneficial 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 care for your shoppers, and your shoppers care for you. Think about getting a $10 million allocation and making $27 million in at some point. It is like free cash in case you’re already an enormous shopper.
The Johnny Come These days IPO Investor
After a 333 p.c pop on day one, would you aggressively purchase a inventory buying and selling at ~600 instances ahead earnings? In all probability not. But loads of retail buyers get swept up within the hype and leap in. Why not? YOLO for even larger 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 are actually on the mercy of market sentiment and unpredictable exterior occasions.
Say you obtain Figma after its IPO leap to $122. The subsequent morning you might 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 experience 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 constantly to justify that valuation.
Firms Are Staying Personal For Longer
Previously, 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 case you invested in Google throughout its IPO and held on till right now, you’ll have clearly performed very properly.
However right now, firms are staying personal for longer with extra of the features accruing to personal buyers. In consequence, it is solely logical to allocate a bigger share of your investable capital to personal progress firms. I intention for between 10 p.c to twenty p.c.
The Higher Option to Put money into Sizzling IPO Firms
Do you need to battle 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 individuals would select the latter.
The fact is that many buyers both don’t perceive how the IPO course of works or don’t notice there’s a extra strategic solution to acquire publicity earlier than an organization lists. A giant purpose for that’s most individuals will not be accredited buyers and are subsequently locked out of personal firm and personal fund alternatives.
In case you are accredited and need to personal stakes in fast-growing personal firms—many within the tech sector—you possibly can allocate a portion of your capital to enterprise capital funds.
The normal mannequin usually 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 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 income.
Even in enterprise funds, who you’re determines how a lot you possibly can make investments. If a fund is run by a common companion with a stellar monitor file, demand to take a position can exceed the fund’s goal increase.
Sequoia Capital, the most effective enterprise funds in historical past, is a main instance. Solely workers, jailed star founders like Sam Bankman-Fried, giant establishments, and shut family and friends usually get in—and their allocations are nonetheless typically lowered.
The Enterprise Capital Funds That Invested in Figma
Listed here are a few of the VC companies that backed Figma earlier than its IPO and the returns they noticed on the providing worth. Most buyers wouldn’t have had the possibility 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 may earmark $50 million for family and friends.
A private finance blogger and two-time nationwide bestselling writer is perhaps invited to take a position $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 powerful monitor file of angel investing could possibly be provided the possibility 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 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 put money into future vintages will solely develop. The enterprise capital companies will then should resolve how giant a fund to boost and tips on how to 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 will not be 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, once I left my job.
The Higher Option to Put money into Firms 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 remains to be personal. As a non-public investor, listed below are the important thing selections you should make:
Select the fundraising stage properly.Not each personal firm makes it to an IPO or has an enriching liquidity occasion. Traditionally, Sequence B or C rounds have a tendency to supply one of the best stability 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 assume. Information on VC agency efficiency and firm progress is broadly obtainable. The problem is gaining entry. Being an angel investor is extraordinarily tough given you typically do not get one of the best appears to be like.
Community and supply worth.Cash is ample. 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 should supply 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.
An alternate method, and the one I’m pursuing extra now, is to put money into an open-ended enterprise fund that already owns personal firms 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 individuals know OpenAI, Anthropic, Databricks, and Anduril. If and when these firms go public, I count on their IPOs shall be simply as oversubscribed as Figma’s.
As a non-public investor in these names by means of Fundrise Enterprise, I cannot should beg for IPO shares. I’ll already personal them. After they go public, I shall be on the receiving finish of the liquidity occasion, not chasing it within the open market. I vastly favor this place. And the wonderful factor is, all people can place themselves in the identical manner 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 personal 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 fantastic 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 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 Powerful Option to Make Cash
Making an attempt to get a significant allocation in a scorching IPO as a retail investor is like bidding on a completely transformed, panoramic view house on a triple-size lot in probably the most fascinating neighborhood. Everybody desires it, and the chances are stacked towards you in a loopy bidding conflict.
If you need higher odds, you’ll want to change your method. Meaning gaining publicity earlier than the gang 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 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 repute to realize entry to personal funding alternatives.
Or, you possibly can skip all that and simply put money into an open-ended enterprise fund which owns firms you need to put money into.
After Figma, the following firm I’m most enthusiastic about seeing go public is Rippling, additionally based mostly in San Francisco. You’ve in all probability by no means heard of it both. It’s within the HR software program area. Nonetheless, for many who know the backstory, it’s an enchanting story of redemption and progress. If it does IPO, I’ll make sure to share the way it goes!
Put money into Personal Progress Firms
Firms are staying personal longer, which implies extra of the features are going to early personal buyers quite than the general public. If you do not need to battle 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 did not put money into AI or work in AI when the business was nonetheless in its early levels.
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 should be an accredited investor both.
For brand spanking new buyers, Fundrise presently gives 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 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) by means of my company account.
Fundrise is a long-time sponsor of Monetary Samurai. I’m thrilled to have a companion 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 instances, and our funding philosophies are intently aligned.
