I recently wrote about my anxiety around not being able to get pre-IPO shares of Stripe but rather than wallow in that pit of despair I decided to move on to the next big thing that might turn out not to be a big thing at all, Robinhood! Remember Robinhood? It’s the company that pioneered confetti exploding on your phone every time you make a trade to make it feel like investing is one big party. It’s also the company that stopped its members from being able to sell GameStop shares because it didn’t have enough reserves to cover the backend costs and recently paid $70 million in fines and penalties for misleading investors. Sounds perfect for an IPO!
To be fair, Robinhood has been growing by leaps and bounds. It seems like everyone under 25 has a Robinhood account. According to Forbes, from 2013 to 2020 the company added 13 million users and then when all the controversy around GameStop hit, they added another 6 million users in the first two months of 2021. That’s a lot of young, active members with some level of discretionary income who will be extremely appealing to advertisers.
The question I’m interested in is, “Can I actually purchase pre-IPO shares? ” Robinhood claims to be all about the democratization of investing so I’m hopeful. According to published reports, Robinhood is taking the unprecedented step of reserving 20-35% of it’s pre-IPO shares for its customers. I wasn’t a Robinhood customer until last week when I realized I wanted to join Robinhood simply so I can experience the feeling of exclusivity that comes with getting in on pre-IPO shares.
Here’s an excerpt from the app’s FAQ:
Q: Are any customers given a greater chance of getting stock?
A: No. Our distribution model randomly selects who receives IPO shares from a pool of everyone who submitted a request.
Hallelujah! Finally, a company is distributing shares fairly and democratically. I don’t really care whether the stock makes or loses money. I’m just excited about the process. OK, that’s not totally true. I’d like it to make money. Everyone likes to make money. But I’m rooting for the IPO to go well because I’m hopeful that more companies will adopt this system and allow regular retail investors to access IPO shares just like the big boys do.
There are a few minor complications. The shares are priced in a range of $38-$42 and are expected to list on 7/29. But when you attempt to purchase shares you get this message:
Max Share Price
“A portion of your buying power is held for potential price movement. This 20% buffer is based on the highest price in the range. Your order remains valid if the final price of the IPO is within this 20% range.”
In layman’s terms, this means you may not get shares within the $38-$42 price range. You may be awarded shares that are 20% more expensive than those shares, for a max share price of $50.40 per share. However, there is a feature where you can “name your price” in an attempt to receive shares within the $38-$42 range.
The share price hasn’t even been listed and I already feel like I’ve lost money on this trade. Do I set my price at $42/share or do I allow the price to have a ‘20% buffer’ allowing for a max price of $50.40/share? I guess the answer to that question has everything to do with freedom, democracy and the long term prospects of a company that claims it’s redefining the way Americans invest.
