Finance

Retail investors are using digital platforms to cash in on IPO boom

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Coinbase employees spray champagne during the company’s initial public offering on Wednesday, April 14, 2021 outside the Nasdaq MarketSite in New York, United States.

Michael Nagle | Bloomberg | Getty Images

LONDON – Stock market listings make founders, venture capitalists and large institutional investors a fortune. Now retailers are looking to get involved with a number of new digital investment platforms.

David Middleton, an M&A advisor based in Warrington, England, bought shares in companies recently listed on the Freetrade stock trading app, such as Palantir, Snowflake and Coinbase.

“For me it was just a case of: I like the sound of the business,” Middleton told CNBC on the phone.

Middleton, a member of London-based financial education website Finimize, says it’s been a “bumpy road” when it comes to investing, but he’s been on it long term. So far he has made a profit on his investments.

“I’m not someone who deals with massive financial details – there are so many other things that affect stock prices,” he added. “I don’t care what happens in the short term. It could go up or down. I just want to be there for the ride.”

Over the years, several platforms have emerged that allow amateur investors to own a small group of companies in both the public and private markets. In venture capital, equity crowdfunding services like Crowdcube and Seedrs have long allowed startups to raise funds from users. The idea is that this will strengthen the relationship between customers and brands.

On Thursday, Crowdcube will open a secondary market called Cubex, through which existing shareholders can outsource part of their shares in private companies to private investors. The platform pulls data from Crunchbase, a website that provides insights into startups to provide users with information about the companies it lists.

“What we’ve done well over the past 10 years is that ordinary people can invest in exciting companies,” Darren Westlake, CEO and co-founder of Crowdcube, told CNBC.

“Our marketplace lists thousands of European companies. Retail investors can access the platform, use powerful search and discovery tools on the platform, and make adjustments to find companies that are of interest to them.”

It’s a particularly timely product launch, especially as a flood of European tech start-ups will go public in the coming months. This year, companies like Deliveroo and Darktrace have already hit the public market, and several other companies, including Wise, WeTransfer, and Klarna, will soon be added to the list.

Invest in IPOs

Beginners are increasingly trying to get involved in the debuts of companies. Deliveroo let its customers and the general public invest in its IPO through a platform called PrimaryBid. However, due to conditional trading restrictions, these investors were tied to their positions for up to one week after the first trading day of Deliveroo. The grocer’s shares fell sharply on its debut, becoming one of the worst London IPOs in history.

“Giving retail investors access to the IPO at the same stage as institutional investors is critical to the marketplace,” said Westlake, who invested £ 1,000 ($ 1,390) in Deliveroo through PrimaryBid.

In the UK, some investment platforms are campaigning for the government to have private investors participate in initial public offerings in order to improve the playing field between individual and institutional investors.

“Currently, the rights of retail shareholders are almost completely ignored in the vast majority of IPOs, most of which take place behind closed doors between city institutions,” wrote Hargreaves Lansdown CEOs, AJ Bell and Interactive Investor in an open letter to City Secretary John Glen in February.

The UK Treasury, currently seeking to reform the London listing system, was not immediately available for comment when contacted by CNBC.

According to Reuters, Robinhood is developing a platform in the USA with which users can participate in initial public offerings, including their own. The company played a key role as retailers piled into high short-selling stocks like GameStop and AMC. Robinhood has been criticized by users for restricting trading in such stocks due to volatility and regulatory requirements.

Robinhood declined to comment on Reuters’ report.

Avishek Das | LightRocket | Getty Images

Meanwhile, a US company called Forge is offering a marketplace similar to Crowdcube’s that allows users to invest in companies before they go public. The company recently raised $ 150 million from investors like Wells Fargo and Temasek.

Make early bets

Some investors want to support companies earlier in their journey in hopes of generating substantial profits by the time they go public or acquire a company.

Stock crowdfunding sites allow consumers to buy shares in companies at an early stage. But now some venture capitalists are looking for ways to get individual investors involved in their start-up betting.

In the UK, Passion Capital, an early investor in the digital bank Monzo, opened its third fund to the public through Seedrs. The move meant any investor could become Passion Capital’s new fund – a role normally limited to pension funds and family offices – and would therefore benefit as the fund’s portfolio grew in value.

“We’ve heard from other venture fund managers who were just as excited and told us they’ll be using Seedrs in the near future to do the same,” said Eileen Burbidge, founding partner of Passion Capital. said CNBC.

Burbidge said she saw a connection between the Reddit-fueled stock market hype and her initiative.

“It was clearly one of the guiding themes to try to reduce the impact of ‘faceless’ hedge funds and bring some of that ‘market power’ to the retail investor,” she said. “Having access to market impacts, exposures and assets that have remained in the past for institutions or the ‘rich’ for more individuals is a good thing.”

However, she added that prior to making such investment decisions, individual investors should be adequately informed of the risks involved.

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Robert Dunfee