Anthony Noto, CEO of SoFi
Adam Jeffery | CNBC
Online financial start-up SoFi is lowering the barrier for amateur investors to buy shares in companies when they go public.
These IPO shares have historically been reserved for Wall Street institutional investors or high net worth individuals. Retailers have no option to buy into newly listed companies until those stocks are actually traded on the exchange. At this point the price is often higher.
"Main Street will have access to investment like it would not have before," SoFi CEO Anthony Noto said in a telephone interview. "It gives more differentiation and more access so people can build diversified portfolios."
SoFi itself will be an underwriter on these deals, meaning it will work with companies to determine a share price, buy securities from the issuer and then sell them back to specific investors. It is common for brokerage firms to receive a portion of the IPO stock in this process. But they don't usually offer them to the everyday investor.
Noto has worked on more than 50 initial public offerings, including Twitter's debut, in his previous role as partner and head of the technology media and telecommunications group at Goldman Sachs. Companies like Goldman generate income from Wall Street funds that often go public, "based on access to this unique product," he said.
"Individual investors do not receive this type of income and therefore do not have access to the unique product," said Noto. "The cost of retail would be too high if they chose to."
SoFi customers with an account value of at least USD 3,000 can enter the desired number of shares as a "reservation". The app will notify you when it's time to confirm an order.
The trading app Robinhood is working on a similar platform to provide access to initial public offerings, including its upcoming debut, according to Reuters. Robinhood declined to comment.
The Social Finance (SoFi) website on a laptop was launched in Brooklyn, New York on Friday, March 26th, 2021.
Gabby Jones | Bloomberg | Getty Images
SoFi will go public by partnering with a blank check company led by venture capital investor Chamath Palihapitiya. By merging with Social Capital Hedosophia Corp V, SoFi was valued at $ 8.65 billion. Founded in 2011 with a focus on refinancing student loans for millennials, the company now offers stock and cryptocurrency trading, personal and mortgage loans, and wealth management services.
SoFi's IPO product follows record levels of new, younger traders going public during the pandemic. This surge has continued through 2021 and is characterized by frenzied trading in so-called meme stocks like GameStop.
Less than 1% of SoFi accounts are "active traders" trading more than three times a day, and the company has withheld trading in margins or options, according to Noto. Nevertheless, he recognized the current risk appetite of some private investors and the dangers of entering new, unproven companies when they go public.
"Investing early is inherently … risky, and these are less proven companies," Noto said. "Just like with cryptocurrency, we are revealing to people that they are associated with a higher risk."
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