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Robinhood expands IPO access to let companies set aside ‘friends and family’ shares

November 4, 2021, 4:10 PM UTC

It can pay to have friends—especially during an IPO.

After bringing in more than $2 billion in net proceeds from its own public debut, Robinhood is adding a new feature to its IPO offerings.

Now companies that set aside IPO shares for retail investors via Robinhood can start allocating a certain amount of shares for “friends and family”—meaning employees, customers, vendors, or others with ties to the company going public. Robinhood is calling this Directed Share Programs. Shares will be allocated at the pre-listing share price to these individuals via the Robinhood platform.

Robinhood says this will “facilitate meaningful community-driven interactions between companies going public and the individuals who have been a part of their journey leading up to the IPO,” according to a statement on its blog where it announced the new program Wednesday. A perk for Robinhood: Those without an account would need to open one to request shares.

Robinhood first unveiled its IPO platform in May, one of the first brokerages to work with companies to set aside shares for retail investors pre-IPO—shares typically reserved for institutional investors. While not the first or only brokerage to do this, Robinhood has made more companies available to retail investors than anyone else. Since launch, Robinhood investors have received shares from 18 companies, including Robinhood’s own IPO. Currently on the offering block are Sweetgreen, Backblaze, Expensify, and NerdWallet, which is slated to list today on Nasdaq.

Companies are typically allocating a small percentage of their shares to Robinhood’s retail investors, usually somewhere around 1% to 2%. Expensify, for example, is setting aside somewhere up to 2% of its 9.7 million shares to Robinhood investors, according to its IPO filing. At first, it wasn’t clear whether retail investors would hold on to those shares, or immediately turn around and sell them on the public exchange—which could lead to price swings when a stock first begins to trade. But so far, approximately 80% of retail investors have been holding on to their IPO shares beyond 30 days of purchase, according to Robinhood.

It’s unclear exactly how much revenue Robinhood has taken in thus far from IPO Access: The specific figure isn’t broken down in its SEC filings. However, the company does disclose that companies pay the brokerage to distribute new securities to its investors, according to Robinhood’s customer relationship summary disclosure. And Robinhood’s “other revenues” more than doubled this quarter compared with this time last year—now at $34.7 million.

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