Deliveroo customers who bought in early aren’t allowed to sell for a week, illustrating the importance of finding out the terms of the deal before agreeing to purchase pre-IPO shares. Airbnb hosts, however, could have sold right away.
Ritter says these kinds of company stock offerings can help prevent customers from jumping to competitors. Similar to employee stock options, they give people a sense that their own fortunes are tied to the success of the company.
“If the stock price rises, it creates goodwill for both consumers and employees,” Ritter said. “If the stock price drops, however, it can backfire.”
That happened in 1995, when Boston Beer Co.—the Samuel Adams brewer—sold 990,000 discounted shares to customers using coupons affixed to its six-packs. Fitting for the times, customers were able to mail in checks to buy 33 shares of the company for $15 each. A year after the IPO, shares dropped as low as $9.75. By 1998 they sagged to $6.50.
Owning too much in a hot startup can be risky, particularly if shareholders also use the company to generate income.
“My rule of thumb is that you want no more than 10% of your investable assets in any one company stock,” said Sarah Behr, founder of Simplify Financial in San Francisco.
The developments come as the U.S. Securities and Exchange Commission grapples with how to regulate the surge of regular people risking their money in aspects of securities markets that have long been the domain of Wall Street pros.
During the Trump era, former SEC Chairman Jay Clayton wanted to increase mom-and-pop access to private equity and other assets that have long been considered more risky. President Joe Biden’s pick to lead the agency, Gary Gensler, is expected to be more receptive to investor-protection concerns and reverse some of those moves once he’s confirmed by the Senate as early as next month.
Meanwhile, Allison Herron Lee, the agency’s acting chair since January, has expressed concern over how ordinary investors have been affected by recent wild swings in stocks like GameStop Corp. and the white-hot market for SPACs.
Some non-professional investors have been buying shares in these special-purpose acquisition companies, which are publicly traded shares in a company that has said it intends to buy another company and take it public, avoiding a drawn-out IPO process. About five new ones a day have been popping up this year, prompting concerns about bubbles.
New investors hoping to take advantage of a pop might be disappointed to find that they have to hold their equity longer than the first day, so Simplify Financial’s Behr recommends consulting company disclosures to find out exactly when shareholders can sell.
In the past, brokerages, by and large, haven’t rushed to give access to all clients. “IPOs are not for everybody,” a spokeswoman for Charles Schwab & Co. told the Wall Street Journal in 1999, when explaining why only clients with, say, $500,000 on hand were worthy of buying such shares.
These days, a notification on Schwab’s site says the company doesn’t offer IPO shares. At Fidelity Investments, clients need between $100,000 and $500,000 in assets outside of 401(k) retirement savings to buy shares in certain offerings.
ETrade Financial Corp. has stood out for providing non-millionaires a way to buy pre-IPO shares. Now, it will only sell shares in offerings underwritten by Morgan Stanley, which agreed to buy the online brokerage in February 2020 for $13 billion.
For now, IPOs have a certain exclusive appeal.
“It felt pretty cool to say I participated in the IPO,” Lyons said. “I wish that they had allocated more shares.”
—With assistance from Benjamin Bain and Annie Massa.
This article was provided by Bloomberg News.