Confused about who gets IPO shares? The inside scoop on how IPOs are distributed

Home » Blog » Confused about who gets IPO shares? The inside scoop on how IPOs are distributed

Between Uber (UBER), Chewy (CHWY), Beyond Meat (BYND) and other companies going public this year, investors have had their eyes on IPO news. Seeing the increase in companies making the decision to go public, many investors are beginning to wonder how they can get a piece of the next hot IPO to hit the market. Unfortunately, purchasing shares in an initial public offering at the IPO price isn’t as simple as one might hope, and it’s important for investors to understand how they can access these coveted shares.

The process of going public can be a complicated one, with many players coordinating the distribution of shares and ensuring that necessary funds are raised before a company goes public. Investors are often left to wonder why some brokers, firms and investment banks receive more shares than others, or whether they can participate in an offering without large sums of money. While the process can seem as chaotic, there are three key steps in the IPO distribution process.

An IPO starts with a syndicate manager. When a private company is making the decision to go public, they must figure out how much money they want to raise through initial shares. Once a deal is put together, a syndicate manager is brought in to help manage the many investment banks, brokers, institutional and retail investors involved in the undertaking. Think of the syndicate manager as the IPO order-taker and bookkeeper: they look at how many shares the company has to offer, how those shares should be placed and to whom it makes sense to distribute the shares.

Brokers and investment banks line up for shares. The manager takes orders from investment banks and brokers who can in turn bring in institutional or retail customers who want access to the IPO. Let’s say the company is trying to raise $100 million for its IPO. The syndicate manager will look at his order book and see which firms and brokers expressed interest in shares. They might have 20 institutions who want to take $90 million worth of shares, and an assortment of other investors who want $30 million in shares. When the syndicate manager has more potential capital raised than they need, they look at the pool of brokers with the $30 million in investor interest to see who is the best fit and how the available $10 million in shares will be split within that group.

Who receives the shares depends on a few things. When determining who receives allocations, the syndicate manager looks for institutions that really like the space the company going public occupies. Shares go to brokers who already do large amounts of business with the syndicate manager, because they know they can rely on them for business. Unfortunately, because there hasn’t historically been an efficient way to distribute shares to individual retail investors who aren’t associated with these big investment banks or brokers, these investors tend to see the least access to IPOs. Fortunately, that’s changing; ClickIPO leverages position as the first firm working directly with these institutions to offer IPO shares to retail investors through our platform, thus making these offerings more accessible to the “main street” investor.

Getting involved in the IPO market can be intimidating for investors, especially when they’re new and don’t have hundreds of thousands of dollars to invest through a big institution. Fortunately, we’re democratizing the accessibility of public offerings and creating a more diverse pool of potential individual investors for both the issuing companies and the syndicate managers to allocate shares to.


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.