New financial technology platforms are giving individual investors more opportunities to buy into initial public offerings on the same footing as institutional investors. A big leap forward in this trend occurred this week when fintech PrimaryBid Ltd. of London announced it had received US$190-million in funding from an investor group led by SoftBank’s Vision Fund 2.
The fintech intends to use the new funding to expand internationally, including in Canada.
PrimaryBid has already given retail investors in Britain access to more than 150 IPOs and secondary financings at the same prices available to institutional investors. These prices are usually lower than the prices paid after trading begins on the stock exchange.
The company also has an exclusive agreement to partner with European stock markets; it established a presence in France last year. Its focus, for now, is on the United States, where it is seeking regulatory approvals and partnerships with large brokerages.
“PrimaryBid does have plans to expand into the Canadian market and is currently working towards this,” company spokesperson Charlie Cumming told The Globe and Mail. However, it has “no specific timescale” for when the platform will be launched in Canada.
A PrimaryBid account can be set up through an app on mobile phones. When an IPO becomes available, a notice is sent by e-mail to account holders. No commissions are charged on purchases – PrimaryBid functions like an underwriter in that it receives from the IPO company a commission that traditionally has ranged from 3.5 per cent to 7 per cent.
Underwriters often sell IPOs with lock-up periods that prevent some investors, such as company insiders, from selling their allotment for a certain period of time after the listing. They have also been applied to investors buying through PrimaryBid. For example, the offering of IPO shares last year from Deliveroo, a British food-delivery company, required buyers to hold them for a week after the listing.
IPOs don’t always shoot up in value when they start trading, as Deliveroo illustrated. In its first week of trading, the price of its shares tumbled by approximately 25 per cent. They subsequently recovered to show a gain four months later of about 20 per cent over the IPO price; since then, however, the price has trended down below the IPO price.
Other platforms have been announced in the past year. San Francisco-based SoFi Technologies Inc., known as SoFi, launched its IPO platform in March of 2021. Crowdcube, a crowdfunding service that invests in private European companies, announced plans in July to offer an IPO platform as well (still pending). Robinhood Markets Inc. unveiled IPO Access last May. When Robinhood went public in August, it allocated about a quarter of its IPO shares to Robinhood users through the new platform.
Robinhood and SoFi IPO platforms are currently only available to U.S. residents; PrimaryBid is limited to U.K.-domiciled investors.
Although these platforms don’t charge commissions, only a selected number of IPOs are available for purchase at any one time. Also, they may not always be able to provide the number of shares requested by an investor. PrimaryBid also provides access to bonds, investment funds and special purpose acquisition corporations. (Canadians should be able to buy bonds, funds and SPACs once PrimaryBid sets up in this country.)
Some IPO platforms have an anti-flipping policy. An investor who sells their allotted shares within 30 days of the IPO may be banned from participating in IPOs for 60 days. For some investors, this may not be a serious constraint.
Providers of IPO platforms often hail their offerings as contributions to the “democratizing” of financial markets and empowering of individual investors. Most investors will particularly appreciate the cost savings when buying IPO shares.
Larry MacDonald blogs at Investing Journey
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