Gemini up to 30%! New trend in US IPOs: giving retail investors enough "new share" allocation to maximize fundraising scale and avoid first-day surges.
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A quiet revolution is taking place in the US IPO market. More and more companies are allocating a larger proportion of IPO shares to retail investors in order to stabilize stock price fluctuations and maximize fundraising efficiency.
On September 12, according to the Wall Street Journal, the cryptocurrency platform Gemini Space Station, which went public on Friday (September 12), reserved nearly 30% of its IPO shares for retail investors, far exceeding the traditional 6% allocation. On its first day, the stock closed up 14% at $32, giving the company a market value of about $3.8 billion.
“The European Huabei,” buy-now-pay-later company Klarna, also allocated over 10% of its shares to retail investors when it went public on Wednesday. The stock’s first-day gain was controlled at around 15%, in line with the underwriters’ target range, and the company’s valuation was about $16 billion.
Analysts point out that this trend is driven by a rethinking of IPO pricing strategies. Several major IPOs this year have surged on their first day. While this may seem positive, it actually means the companies and early investors missed out on billions of dollars in fundraising. Wall Street bankers are attempting to mitigate this problem by increasing the allocation to retail investors.
Significant Increase in Retail Allocations
In traditional IPOs, institutional investors usually receive the vast majority of the share allocation, with retail investors receiving only about 6%. But several key IPOs this week have far exceeded this ratio.
Gemini plans to allocate as much as 30% of its IPO shares to retail investors, setting a new recent high. Klarna sold over 10% of its shares to retail investors in its IPO on Wednesday.
Cryptocurrency exchange Bullish also allocated 20% of its shares to retail investors during its listing last month. Although the stock still rose 84% on the first day, sources indicated that the large retail allocation helped prevent an even greater first-day surge.
Curbing First-Day Surges Becomes a Key Goal
Underwriters' concerns about excessive first-day gains began with several typical cases this summer. In June, stablecoin issuer Circle Internet Group’s stock price doubled on its first day; in July, design software company Figma soared by 250%.
Figma’s case is especially noteworthy, as the company and its shareholders missed out on about $3 billion in potential gains due to underpricing the IPO. Such first-day surges not only mean the issuer failed to fully capitalize on market demand, but could also disrupt the carefully structured investor base the company built.
Many industry insiders blame these excessive surges on the massive influx of retail investors, who tend to be less price-sensitive. Therefore, allowing more retail participation from the IPO stage has become a new strategy.
Underwriters typically aim to keep the first-day gain around 15%, which both reflects market approval and avoids harming the issuer’s interests due to underpricing.
According to reports, excessive first-day surges can also disrupt the carefully crafted investor base in the IPO. Company executives often handpick large institutional investors, with a preference for fund management firms like Fidelity or T. Rowe Price that tend to hold shares long term.
If the stock doubles or triples in the weeks after listing, these funds may choose to take profits, rendering the careful screening of investors pointless.
By contrast, retail investors are more likely to hold shares for the long term, which is another reason increasing retail allocations helps reduce early price volatility.
Changing Market Environment Drives the Trend
This trend is a result of changes in the IPO market environment. Robinhood Markets CEO Vlad Tenev has long advocated for retail investors to have a bigger share in public offerings.
When Robinhood went public in 2021, it reserved a quarter of its shares for retail investors. Tenev said Wall Street was skeptical at the time, but the situation has since changed.
Tenev said in an interview that companies now “understand that having a large and active retail shareholder base is beneficial for business.”
This week, Robinhood clients can apply to purchase shares of companies including Klarna, Gemini, and the soon-to-be listed StubHub.
It is worth noting that since their IPOs, the share prices of Bullish, Circle, and Figma have all retreated from their early highs, further validating the market rule that first-day surges are often unsustainable.
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