On Thursday, May 20th, 2021 Robinhood launched its new IPO investing platform called Robinhood IPO Access. The Robinhood IPO investing functionality is now live.
In a blog post, Robinhood filled investors in on what to expect.
With at least 13 million eligible customers, Robinhood will likely be the largest IPO investing platform with the lowest minimum account balance ($0) required for eligibility.
The company has built the platform into its existing mobile application.
Robinhood will not be underwriting IPOs. Instead, it will partner with underwriters and rely on the investment banks for share allocations.
So its success will rely on convincing companies and underwriters to prioritize retail investors alongside the wealthy clients of the largest investment banks.
Here’s what we know so far.
As of November 2022, opportunities haven’t faired well. An analysis by Bloomberg showed that all 23 IPOs available on the platform to date fell in value.
Robinhood IPO Investing for Everyone
All customers will have access to IPOs on the Robinhood IPO investing platform. Access will roll out gradually. There’s no way to speed up the process or give yourself a better chance of getting access sooner.
There are no minimum account balances or trading frequencies needed to indicate interest in an IPO.
Robinhood has at least 13 million customers, so high-demand IPOs will likely have a high number of requests.
Randomized Share Distribution
Share distribution will be randomized. All eligible customers who request access to specific IPOs will be put in a pool, and the system will randomly select which investors receive shares.
According to the FAQs:
The amount of shares you request factors into how many you actually get, but it doesn’t affect the likelihood that you’ll get any allocation. You may get all, some, or none of the IPO shares you request. The amount you request lets us know how many shares you’re interested in purchasing.
The First IPO
The first IPO on the platform is expected to be Figs, Inc, which released its amended S-1 on May 20th, which included a clause about Robinhood.
…we currently anticipate that up to 1.0% of the shares of Class A common stock offered hereby will, at our request, be offered to retail investors through Robinhood Financial, LLC, as a selling group member, via its online brokerage platform.
The Figs IPO lead underwriters are Goldman Sachs and Morgan Stanley, which suggests more IPOs led by those two underwriters may make it to the Robinhood IPO Access platform.
The Fig IPO gives Robinhood the chance to test its platform on a smaller deal before potentially facilitating its own IPO (more below). The stock is expected to begin trading on Thursday, May 27th.
Robinhood won’t prevent customers from immediately selling, or “flipping”, shares through the IPO Access program. However, the following consequences will apply:
- If customers sell IPO shares within 30 days of the IPO, they will be restricted from participating in IPOs for the next 60 days.
- Broad-based flipping could reduce the underwriters’ willingness to allocate shares to Robinhood IPO Access customers.
This policy may be subject to change if investors are flippant on the flipping rules.
Will Customers Receive Shares in the Robinhood IPO?
Reporting in January by Bloomberg suggests that Robinhood customers may receive access to shares in the Robinhood IPO.
There was no confirmation of this in the May 20th blog post announcing Robinhood IPO Access.
But the timing looks good. On Tuesday, May 18th, Bloomberg reported that Robinhood may release its S-1 filing as early as this week. If true, investors could be buying Robinhood stock before the end of June.
The Robinhood S-1 filing will give us insight into company financials, risks, the stock symbol, etc.
Watch for a directed share program or mention of Robinhood as a selling group member.
These stock symbols all appear to be available — ROBN, HOOD, RBHD, RHF, RHD. RH, Restoration Hardware, is not.
By offering IPO Access to all customers, Robinhood is now one of the best brokers for IPO investing.
The question remaining is how effectively Robinhood can partner with underwriters to attract shares to its platform.
Sign up with Robinhood to join the new Robinhood IPO Access platform.
Directed Share Program
As of November 2021, Robinhood has expanded its IPO offerings to include directed share programs, according to Reuters. Directed share programs allow underwriters and issuing companies to direct a percentage of shares to affiliates.
Affiliates can mean anyone the company wishes to include. However, it’s sometimes utilized to offer shares to company customers. Airbnb, Uber, and GoPro all offered IPO access via directed share programs to hosts, drivers, and customers.
The new offering could expand the way Robinhood pitches startups looking to IPO.
Robinhood is tapping into its massive user base to give everyone an equal shot at investing in hot IPOs.
Of course, not everyone can invest in every high-demand IPO. But by randomizing allocation distribution, Robinhood is making the process fairer given the current environment.