A company’s Initial Public Offering (IPO) marks a major milestone in the evolution of its business. Despite their prestige and the media buzz that large IPOs generate, they often don’t mean all that much to mainstream retail investors since the lion’s share of the allocation, approximately 80%, goes to institutional investors.
The remaining shares, approximately 20%, are allocated to well-connected individual investors and hedge funds. A recent CrowdFund Beat article points to two barriers that have prevented small retail investors from participating in most offerings. The first is that IPOs are accessible only through a relationship with the investment bank underwriting the offering, which is almost impossible for mainstream retail investors to establish. The second reason is that syndicate managers view retail investors as “IPO flippers” – i.e., investors who plan to sell their IPO shares within the first 30 days of trading regardless of the price, causing undue pressure on the share price. Not all retail investors behave in this manner, but syndicate managers currently do not have an efficient way of tracking buy-and-sell behavior at the retail investor level. “IPO flippers” are –often professional investors who flip IPOs for a living, disguised as retail investors. Their allocations are part of the 20% that do not go to major institutions.
At Click IPO Securities, LLC (ClickIPO), we believe there is a safe and efficient way to replace “IPO flippers” with true buy-and-hold retail investors by broadening retail investor access to IPO and secondary offerings while, at the same time, providing significant benefits to the issuers, underwriters, and brokerages. The CrowdFund Beat article explains how: Our first-of-its-kind, easy-to-use mobile app allows users to research available offerings and place conditional purchase orders for shares with a few clicks. Since the ClickIPO app technology integrates with existing brokerages, shares are purchased in and allocated directly to client accounts held at their respective brokerage firm. Online brokerage firms are provided with a dashboard to monitor all client activity.
ClickIPO uses a proprietary “ClickIPO Investor Score” to help identify “IPO flippers” and prevent them from receiving allocations of IPO shares. Built into the app, the “ClickIPO Investor Score” takes into account a myriad of factors that make an investor desirable to the underwriter and issuer – most importantly, the investor’s history of holding shares for 30 days or more before selling is the most heavily weighted factor in determining the score. Those with higher scores are more likely to be allocated shares in future offerings. Online brokerage firms that provide access to IPOs, since very few currently do, are more attractive to existing and new potential customers. There is also never a commission charged to customers for purchasing IPO shares.
Aside from limiting allocations of shares to “IPO flippers”, the ClickIPO technology benefits underwriters by giving syndicate managers the ability to quickly and efficiently allocate millions of shares to thousands of retail investors. In addition, underwriters have unprecedented insight into investor behavior through data that is generated by the ClickIPO technology and available on the platform.
Read the full CrowdFund Beat article here. The ClickIPO app is expected to launch during the second quarter of this year. In the meantime, you can sign up for the beta test wait list, which can be found at clickipo.com.
Risk of Investing in Initial Public Offerings (“IPOs”)
There are specific risks in investing in an Initial Public Offering (“IPO”). Among other things, the stock has not been subject to market valuation. Those risks are described at length in the prospectus, and we urge you to read the prospectus carefully to understand those risks before investing. An IPO is the first sale of stock by a private company to the public and may not be suitable for all investors. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded. IPOs are a risky investment. For even experienced investors, it can be difficult to predict what the stock will do on its initial day of trading and in the near future because there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, which are subject to additional uncertainty regarding their future values. Read more information regarding the significant risks associated with investing in IPOs.