Accessing IPOs as a Retail Investor: Opportunities and Considerations

New to investing and inspired by your blog and website. Outside of my pension, I am only investing relatively small sums in funds and ETFs, with any profits going towards a holiday fund at most. I wondered whether any trusts or ETFs enable small/retail investors to access IPOs. I am no expert, but I understand that initial allocations are typically awarded to significant institutional investors. Are any of these open to retail investors, and how would that work in practice?

Glad that you like the website! IPOs (Initial Public Offerings) are when companies first become available on a public stock exchange, so the likes of you and I can buy them in an open marketplace. Alibaba, Visa, and Facebook are famous examples of companies where the founder/ owners say “we want more people to be able to invest in us without the faff of private contracts and negotiations” and so list on the stock exchange. Zoom is a more recent example. Because there are lots of famous examples where the share price has shot up on listing, there is a bit of a perception that getting on board an IPO is a fast way to make money. Not so fast, Batman.

Pets.com is a good example of an IPO flop. After raising $82.5 million in its February 2000 IPO, the company filed for bankruptcy a mere nine months later. Uber was another limp squib. Its IPO in May of 2019 was deemed a Wall Street flop after the company failed to meet its expected valuation of $120 billion upon its debut. Although it aimed for a $45 per share price at opening, it opened at $42 instead before closing down at $41 per share on the first day of trading.

So just because it’s a brand you know or a product you like, doesn’t mean that an IPO is a surefire success.

Given that you are investing small sums and that you’re still on a learning curve, I would steer clear of trying to be too clever. If you do want to have a go, then it is typically your investment platform which would be the go-between for you. Other things to consider – if you’re after a higher-risk approach – could be crowdfunding into really early-stage companies (mega high risk but some people enjoy backing companies they like and rolling the dice). Or a less spicy approach could be to look at a small-cap or micro-cap fund which will seek out earlier stage and smaller companies. You could look at the AIC (Association of Investment Companies which looks after investment trusts) website for some inspiration. I have to say Nick that I would take a much more boring approach and not try to run before you can walk.

If you’re still keen – and rumoured upcoming UK IPOs could include firms such as Monzo, Starling, and Brewdog- then your best bet is to have an account with a large trading platform such as a Hargreaves Lansdown, interactive investor, Halifax, AJ Bell or similar. And wait for the IPO to be announced. Hope that helps!