Preparing To Not Get Pre-IPO Shares of Stripe

Lately, I’ve been waking up in the middle of the night thinking about how I can get ahold of some pre-IPO shares of Stripe. I know, I should be waking up to think about sex or Chris Paul finally winning an NBA title but I’m not. As a reminder, Stripe is a technology company that allows other companies to collect online payments. If you’ve ever bought anything online, from a cheeseburger to a cheesy outfit, there’s a good chance the company doing the selling uses Stripe. Amazon, Google, Salesforce, Shopify, Microsoft and hundreds of other companies use Stripe to process billions in payments every year. The company charges its customers 2.9% plus 30 cents every time a credit card is successfully charged. Stripe also makes money from an expanding array of business services including corporate credit cards and small business loans.

How much is Stripe Worth? According to Forbes, it’s worth $115 billion up from $36 billion only a year ago. They’ve raised $2.2 billion in funding so far from all the usual suspects including Andreesen Horowitz and Sequoia. And while there’s no official IPO date, rumors are picking up steam that it’ll happen sometime in 2021.

So how does an everyday regular investor like you or me get a few shares at the IPO price instead of buying after it goes public for an inflated price? I wish I knew the answer.

“You’ve got to have a venture fund,” a friend recently told me.

OK great but it’s a little late for that because I never studied finance and I still need a calculator to multiply and divide things. So my only other alternative is to try and buy shares through my brokerage (Fidelity) when Stripe goes public. Here’s where I get so angry about the market and the way the world works. I have tried to buy shares of IPO’s through Fidelity on numerous occasions (Beyond Meat) and I have never been allocated shares. Here are the official eligibility rules from Fidelity for a recent IPO .

*Eligibility:  Eligibility for participation in traditional IPOs is reserved for brokerage customers with a minimum of $100,000 in certain assets at Fidelity. Other providers of traditional IPOs, and other equity public offerings made through Fidelity may be reserved for brokerage customers with a minimum of $100,000 or $500,000 in certain assets at Fidelity. Auction OpenIPOs and Secondary offerings made available through Fidelity are reserved for brokerage customers with a minimum of $100,000 in certain assets held at Fidelity. Members of the Fidelity Private Client Group can participate in all offerings.

The $500,000 or $100,000 requirement will be determined weekly by aggregating all assets in retail accounts which list the same name and Social Security number and are maintained by Fidelity Service Company, Inc. or Fidelity Brokerage Services LLC (excluding assets or trades maintained on behalf of any divisions of Fidelity Distributors Company LLC, such as 401(k) or 403(b) plan assets). Other assets may be included in the calculation at our discretion. In addition, an account in which an indication of interest is entered must have at least $2,000 in cash or fully paid securities.

First of all, how is it fair that the ability to participate in an IPO is based on how much money I have with Fidelity? Why should people with less than $100,000 be ineligible to participate in IPO’s?  Don’t people without large sums of money need access to great investments more than people who have already amassed large fortunes because of their investing acumen? It’s like saying if you don’t come from money, you can’t get into elite schools like Boston Latin. That sucks and I’m glad the school admissions policy is changing. The IPO policy at Fidelity and all brokerages should change too.

The other phrasing that’s odd about Fidelity’s policy is ‘in certain assets.’ You have to have a minimum of $100,000 or $500,000 ‘in certain assets.’ What could those certain assets be? Does someone with shares of Apple win the lottery instead of someone with shares of Facebook because Mark Zuckerberg is so annoying? Do I have to own a specific number of shares of Fidelity mutual funds to increase my chances of being allocated shares? Does it matter if I have hair or I’m balding? It goes on to say that “other assets may be included in the calculation at our discretion.” So if you like me because I watch a bunch of HBO shows even if I didn’t know the kid did it in Mare of Easttown, I may get shares?

It all seems so random and stilted. Why not make it a fair lottery system where anyone who wants to purchase shares can do so if their account happens to be one of the lucky ones chosen? Once you’re given shares of an offering, you go to the end of the line so someone else has a chance to participate in the next one. Isn’t that the American Way?

I’ve written about this before and I know the entire system is not likely to change before Stripe goes public. So I’m taking steps now to mentally prepare myself for the eventual failure. I’m training for a century bike ride so my legs will hurt more than my brain when I realize I can’t buy shares. And I’m focusing my anger on other things in life like the fact that I dropped cable but I’m now paying  $64.99 a month for YouTubeTV.

It’s true that in 2020 only 22% of IPO’s were profitable. But this has nothing to do with Stripe. Stripe will make a lot of people a lot of money when it goes public. Unfortunately, you and I will likely not be among them.