After I labored at Goldman Sachs and Credit score Suisse, we’d sometimes deliver a sizzling IPO deal to market. In the course of the firm roadshow, we’d take administration round to satisfy one on one with our largest buyers and shoppers. Typically the IPO was so in demand that many purchasers 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, 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 pals and kin to go away off the visitor record for a restricted funds marriage ceremony.
Some shoppers acquired 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 recognized 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 occasions oversubscribed, the typical shopper would possibly get 10 p.c of their request. However our greatest shoppers would possibly 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 right away pop within the share worth, delivering instantaneous beneficial properties to those establishments. In different phrases, the wealthiest shoppers who paid essentially the most in charges usually acquired the biggest 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 sizzling 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. If you happen to had been a Robinhood shopper, you could possibly point out your required allocation, however you’d be crammed 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 p.c of what was requested. In actuality, many retail buyers acquired 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 under who had $10 million along with his dealer. What a slap within the face!
Or possibly you had 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. 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 could seemingly carry out effectively as a result of they’d 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 worthy 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’s not written down wherever, however that’s how enterprise is finished. You deal with your shoppers, and your shoppers deal with you. Think about getting a $10 million allocation and making $27 million in in the future. It is like free cash if you happen to’re already an enormous shopper.
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 better 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 outdoors occasions.
Say you acquire Figma after its IPO bounce 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 top. That could be a tough experience for a brand new shareholder.
No person 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 occasions ahead P/E a number of. That could 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
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. If you happen to invested in Google throughout its IPO and held on till at present, you’d have clearly executed very effectively.
However at present, corporations are staying non-public for longer with extra of the beneficial properties accruing to personal 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 Option to Put money into Sizzling IPO Firms
Do you need to combat for IPO scraps and overpay as soon as a progress firm goes public? Or would you reasonably 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 approach to acquire publicity earlier than an organization lists. An enormous cause for that’s most individuals aren’t 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 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’re determines how a lot you may make investments. If a fund is run by a normal companion with a stellar monitor document, demand to take a position can exceed the fund’s goal increase.
Sequoia Capital, among the finest enterprise funds in historical past, is a main instance. Solely workers, jailed star founders like Sam Bankman-Fried, massive establishments, and shut family and friends sometimes get in—and their allocations are nonetheless usually lowered.
The Enterprise Capital Funds That Invested in Figma
Listed below are among the VC corporations that backed Figma earlier than its IPO and the returns they noticed on the providing worth. Most buyers wouldn’t have had the prospect to take part in these funds. And even if you happen to 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 sizzling 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 creator could 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 robust 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 may even result in strategic partnerships. If acceptable, the CEO’s firm would possibly even change into 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 corporations will then should determine how massive a fund to boost and the right way to allocate house amongst buyers.
I’m personally invested in three vintages of one of many enterprise corporations that backed Figma. Sadly, my funding quantities in every aren’t 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, once I left my job.
The Higher Option 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 want to take a position whereas the enterprise remains to be non-public. As a personal investor, listed below are the important thing selections it’s essential 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 most effective stability between danger and reward for corporations that would finally go public. - Establish the precise firm or enterprise capital agency.
That is simpler than most individuals assume. Knowledge on VC agency efficiency and firm progress is broadly out there. The problem is gaining entry. Being an angel investor is extraordinarily tough given you usually do not get the most effective seems. - 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, it’s essential to provide one thing greater than a test. - Be affected person.
When you safe an allocation, you fund capital calls, present assist the place potential, and wait—usually 5 to 10 years—for liquidity occasions.
Another 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 would like publicity to. With no gatekeeping or throttled allocations, I can determine 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 corporations go public, I count on their IPOs will probably be simply as oversubscribed as Figma’s.
As a personal investor in these names by Fundrise Enterprise, I cannot should beg for IPO shares. I’ll already personal them. After they go public, I will probably be on the receiving finish of the liquidity occasion, not chasing it within the open market. I vastly want this place. And the superb factor is, everyone can place themselves in the identical method given anyone can spend money on Fundrise Enterprise. It is simply that not everyone 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 persist with index funds and ETFs. That’s completely high-quality 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 in the course of 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 once you attain for outsized returns.
Chasing Sizzling IPOs Is a Robust Option to Make Cash
Making an attempt to get a significant allocation in a sizzling IPO as a retail investor is like bidding on a completely transformed, panoramic view house on a triple-size lot in essentially the most fascinating neighborhood. Everybody needs it, and the percentages are stacked in opposition to you in a loopy bidding conflict.
If you need higher odds, that you must change your method. 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 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 fame to achieve entry to personal 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.
After Figma, the following 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 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 Firms
Firms are staying non-public longer, which implies extra of the beneficial properties are going to early non-public buyers reasonably than the general public. If you do not need to combat within the “Starvation Video games” for a tiny IPO allocation, think about 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 need my youngsters asking why I did not spend money on AI or work in AI when the business 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 if you happen to 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 must be an accredited investor both.
For brand spanking new buyers, Fundrise at present provides a $100 bonus if you happen to make investments between $10,000 and $24,999, and a $500 bonus if you happen to 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 companion 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 carefully aligned.