(Rewrites throughout, adds more details on SoFi’s plans, background on IPO investing)
March 26 (Reuters) - Online lending startup Social Finance Inc (SoFi) will allow retail investors to buy into initial public offerings (IPOs) of companies, an investment opportunity traditionally reserved for large Wall Street investors.
SoFi’s Friday announcement comes a day after a Reuters report revealed that online brokerage Robinhood Markets was building a platform to “democratize” IPOs, including its own, that would allow users of its trading app to snap up shares alongside big funds.
The latest moves, giving everyday investors direct access to new companies, could threaten Wall Street’s control over the listing process, as institutional investors have traditionally been first in the queue for such stocks, as well as investment banks that earn big money from arranging such offerings.
“If you’re going to achieve your financial goals, having access to a broad range of diversified investment opportunities is imperative, and gaining access to primary offerings is another way to diversify your portfolio that has previously been restricted to a select few,” SoFi Chief Executive Officer Anthony Noto said.
Noto, who has previously headed the technology media and telecom group at Goldman Sachs, has worked on dozens of IPOs in that role, including listings of the likes of Twitter.
SoFi said the latest offering will be available to anyone with an investment account with the company and has at least $3,000 in their account.
POWER TO THE PEOPLE
Currently, retail investors and other amateur traders cannot buy shares of a newly listed company until they start trading. Since shares often trade higher when they debut, big funds that get allocations in an IPO have a massive advantage.
The average first-day trading pop on U.S. listings of businesses in 2020 was 36%, according to data provider Dealogic.
Wall Street banks typically get big allocations in IPOs, but the latest moves from up and coming fintech startups could challenge the status quo.
Reuters could not immediately verify how SoFi plans to pull off its plan to let users directly buy into IPOs of other companies -- whether it will need to negotiate agreements with underwriters, companies and their brokerages, or build a platform similar to what Robinhood is planning.
The latter would almost certainly require the blessing of U.S. regulators, experts said. In an interview with CNBC on Friday, Noto said SoFi would act as the underwriter on deals.
SoFi did not immediately respond to further questions on its new plans.
“I’ve talked a lot about leveling the playing field for retail investors, and am proud to say @SoFi is aiming to do that starting today,” tweeted venture investor Chamath Palihapitiya, whose blank-check firm struck a deal to take SoFi public in January.
Palihapitiya has been a vocal critic of Robinhood’s decision to restrict the buying of heavily-shorted stocks caught up in the Reddit-fueled trading frenzy earlier this year. (Reporting by Noor Zainab Hussain in Bengaluru; Editing by Ramakrishnan M. and Shinjini Ganguli)