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IPO 101: What to Know About Investing In An IPO

September 16, 2023

(BPT) - With the boom in retail trading over the last few years, one area may be new to a lot of investors: investing in an Initial Public Offering (IPO). IPOs have been fairly scarce the last several years and traditionally have not been available for everyday investors, so many may not know what is involved in investing in them.

Here are things every investor should know about investing in IPOs:

What is an IPO?

An IPO, or initial public offering, refers to privately owned companies selling shares of the business to the general public for the first time. Companies choose to do this for a mix of reasons, including to boost a company’s profile, bring prestige to the management team, and raise cash that can be used for expanding the business.

Once a company has completed their IPO, their company will trade company shares on a stock exchange for any investor to invest in, and the stock price will be subject to market forces driving it up or down.

Deciding if an IPO Investment Is Right For You

If you have the option to invest in an IPO, you should do so only after having conducted your own due diligence and considering whether or not this fits in your investment strategy. The SEC states that “being well informed is critical in deciding whether to invest. Therefore, it is important to review the prospectus and ask questions when researching an IPO.”

SoFi, for instance, offers robust educational resources available to any investors to better understand different investment vehicles, including IPO investing, and how you can best determine your personal investment strategy.

Understanding IPO Investing vs. Buying Shares on Listing Day

The IPO price is the price at which shares of a company are set before they are sold on a stock exchange. As soon as markets open and the stock is actively traded, that price begins to go up or down depending on consumer demand, which is known as the opening price.

Investing in an IPO means you are buying in at the IPO price versus buying the opening price or any other price the day or days after the stock debuts on a stock exchange.

Indication of Interest & Share Allocation

If you are interested in IPO investing, you will have to go through a few steps before being able to buy into the pre-listing price. When a company is preparing their IPO, there will be an indication of interest period for investors where you will request the number of shares you would like to buy. An indication of interest is similar to making a reservation - you are holding your place in line and will be contacted by the brokerage firm you invest with to confirm your intent once the deal is live and firm orders can be received.

Oftentimes there is a lot of pent-up interest to invest in private companies, so usually you may receive fewer shares than you originally requested, and depending on that level of interest, the IPO price per share could go up or down.

Either way, once your allocation has been made, your brokerage firm will communicate how many shares you will receive and what the final price per share will be to ensure you’d still like to purchase the shares you requested before executing any trades.

Where to Invest in IPOs

Traditionally, IPOs have been primarily for institutional investors and high-net worth individuals, but increasingly companies are considering everyday investors a part of their IPO strategy and setting aside shares to be allocated to these traders.

SoFi Invest¹ offers IPO trading² to those with SoFi Active Invest accounts, and there are no account minimums required to participate plus no commissions or fees on IPO trades. As a SoFi Invest member, you simply need to view your Invest account, look to see what IPOs are available and answer a few questions to see if this investment is right for you. From there, you only need to indicate how many shares you’re interested in and keep an eye out for updates and alerts on your share allocation.

Learn more about SoFi IPO and see what IPOs may be available to invest in here: https://www.sofi.com/invest/ipo-investing/

DISCLOSURES

1. SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.

2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA(www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) SoFi Crypto is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of SoFi Digital Assets, LLC, please visit SoFi.com/legal.

Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Bank, N.A.

2. Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. This should not be considered a recommendation to participate in IPOs and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation. New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For more information on the allocation process please visit IPO Allocation.

Please review the Customer Relationship Summary (Form CRS) which contains important information about the product, services, fees, and conflicts of interest of SoFi Securities LLC.

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