How Retail Investors Can Get Access to IPO Shares

Understanding the IPO Allocation Process
The core challenge for retail investors is the structure of the IPO allocation system itself. Investment banks, known as underwriters, manage the offering and prioritize distributing shares to their largest and most influential clients. These are typically institutional investors, such as pension funds, mutual funds, and hedge funds, who can place multi-million dollar orders. This practice is designed to ensure the IPO’s success by placing large blocks of shares with long-term, stable holders. The portion of the total offering reserved for retail investors is often minuscule, creating intense competition for a limited supply of shares. This systemic bias is the fundamental barrier to entry.

Direct Paths: Participating in New Issues Through Your Brokerage
A primary and increasingly accessible method for retail investors to obtain IPO shares is through online brokerage platforms that participate in new issue distributions.

• Brokerage IPO Allocation Programs: Many major retail brokerages, such as Fidelity, Charles Schwab, and E*TRADE (now part of Morgan Stanley), have dedicated IPO centers. To be eligible, investors must have an account in good standing and often need to meet specific criteria, which can include maintaining a minimum account balance or demonstrating a certain level of trading activity. Crucially, eligibility does not guarantee an allocation; it merely grants you the opportunity to place a “conditional offer to buy.”
• The Underwritten Allocation Model (e.g., Morgan Stanley Access Investing): Some brokerages that are also underwriters, like Morgan Stanley, may offer IPO access to clients of their wealth management or advisory services. Access is typically tiered, with priority given to clients with significant assets under management. This model directly connects the brokerage’s underwriting activities to its retail client base, but it serves a premium segment.
• The Retail-First Model (e.g., SoFi Invest, Robinhood): A newer, disruptive approach has been pioneered by fintech platforms. SoFi Invest and Robinhood’s IPO Access feature aim to democratize the process by explicitly setting aside a portion of shares for their retail users. The application process is integrated directly into their mobile apps, requiring users to express interest and the number of shares they wish to purchase. Allocations are then often determined by a lottery system if demand exceeds supply.

The Mechanics of Requesting Shares
Once you have access to a brokerage’s IPO program, the process is standardized.

1. Expressing Interest: During the IPO “roadshow” period, the brokerage will list upcoming IPOs. You can review the preliminary prospectus (the S-1 filing with the SEC) and indicate your interest.
2. Placing a Conditional Offer: You specify the number of shares you wish to purchase and the price at which you are willing to buy. Most retail investors place an offer at the expected price range or agree to purchase at the final offering price, whatever it may be.
3. Allocation and Confirmation: After the IPO is priced, the brokerage receives its total allocation from the underwriter. The brokerage then distributes these shares among its clients who expressed interest. Due to high demand, it is common for retail investors to receive only a fraction of the shares they requested, or sometimes none at all. You will receive a notification of your allocation before the stock begins trading.
4. The Lock-Up Period Consideration: It is vital to understand that while you are not subject to the lock-up period (a 90 to 180-day restriction that prevents insiders and early investors from selling their shares), your shares are not either. You are free to sell your allocated shares immediately upon the start of public trading.

Indirect Strategies for Gaining IPO Exposure
When direct allocation is not possible or successful, several indirect strategies can provide exposure to a newly public company’s performance.

• Investing in IPO-Focused Exchange-Traded Funds (ETFs): ETFs like the Renaissance IPO ETF (IPO) or the First Trust US Equity Opportunities ETF (FPX) systematically invest in a basket of recently public companies. This provides immediate diversification, mitigating the risk of any single IPO performing poorly. The ETFs rebalance periodically, adding new IPOs and removing older holdings as they mature. This is a low-effort, passive approach to gaining broad exposure to the IPO market.
• Buying Shares on the Secondary Market: The most straightforward alternative is to purchase shares on the open market once trading begins. While you miss the offering price, you avoid the allocation lottery. The key is to have a disciplined trading plan. Volatility is extreme in the first hours and days of trading. Strategies include using limit orders to control the purchase price rather than market orders and being prepared for significant price swings. This method requires patience and a strong conviction in the company’s long-term prospects, separate from the day-one hype.
• Investing in Pre-IPO Companies via Special Purpose Acquisition Companies (SPACs): SPACs, or “blank check companies,” are shell companies that raise capital through an IPO with the sole purpose of acquiring a private company, thereby taking it public. Retail investors can buy shares of the SPAC before it announces a merger target. This provides a form of pre-IPO access, though it carries unique risks, including the possibility of the SPAC failing to find a suitable target and liquidating.
• Exploring Pre-IPO Private Markets (for Accredited Investors): Platforms like Forge Global and EquityZen facilitate the trading of shares in private companies from early employees and investors before an IPO. Access to these platforms is generally restricted to accredited investors—individuals with a net worth exceeding $1 million (excluding a primary residence) or an annual income exceeding $200,000 ($300,000 with a spouse). This is a high-risk, illiquid avenue that offers the earliest possible entry point but is not available to the general public.

Critical Due Diligence: Researching an IPO
Regardless of the access method, thorough research is non-negotiable. An IPO is not just a stock ticker; it is a company with a financial history and future prospects.

• Study the S-1 Prospectus: This is the company’s official registration statement filed with the SEC. Key sections to focus on include the “Risk Factors,” which outlines all potential threats to the business; the “Business” section, which explains the company’s model and strategy; the “Management’s Discussion and Analysis (MD&A),” which provides context for the financials; and the “Use of Proceeds,” which details how the company plans to spend the money raised.
• Analyze the Financial Statements: Scrutinize the balance sheet, income statement, and cash flow statement. Look for trends in revenue growth, profitability (or lack thereof), gross margins, and cash burn rate. Understand the company’s path to profitability if it is not yet profitable.
• Evaluate the Underwriters and Leadership: A top-tier investment bank underwriting the IPO can be a positive signal. Similarly, research the executive team and board of directors to assess their experience and track record.
• Understand the Valuation: Compare the company’s proposed valuation to that of its publicly traded competitors. Metrics like Price-to-Sales (P/S) ratios, Enterprise Value-to-Sales (EV/S), and others can help determine if the company is being offered at a reasonable, inflated, or discounted price relative to its peers.

Navigating the Risks and Realities
Retail IPO investing is fraught with unique risks that must be acknowledged.

• The “IPO Pop” and Flipping: Many investors are drawn to IPOs by the potential for a first-day “pop” in the share price. While this can happen, it is not guaranteed. “Flipping”—selling shares immediately for a quick profit—can be a successful strategy but may also lead to missing out on long-term gains. Furthermore, some underwriters track flipping activity and may penalize frequent flippers by excluding them from future allocations.
• Volatility and Price Discovery: The initial trading period is characterized by extreme volatility as the market searches for an equilibrium price. The price can swing wildly based on news, analyst ratings, and market sentiment, unrelated to the company’s fundamentals.
• Information Asymmetry: Institutional investors have direct access to management during the roadshow, giving them deeper insights than what is available in the public S-1 filing. Retail investors operate with a relative information deficit.
• The Hype Cycle and Emotional Investing: IPOs are often surrounded by significant media hype and excitement. It is crucial to separate the narrative from the financial reality. Making investment decisions based on fear of missing out (FOMO) is a recipe for poor outcomes. A disciplined, research-driven approach is essential to navigate the inherent excitement and noise of the IPO process successfully.