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SoFi, the Nasdaq-listed fintech, is underwriting its first mainstream initial public offering, almost two and a half years after it first claimed to be “weeks” away from breaking into a field dominated by large investment banks.
The San Francisco-based company is working on the listing of grocery delivery app Instacart, which is expected to take place early this month, according to securities filings. It intends to offer shares to users of its retail investment app, according to two people involved in the deal.
Winning a role on one of the most high-profile US listings of the year is a milestone for Sofi, but the slow road to reaching it highlights the challenges that have faced numerous efforts to improve retail access to IPOs.
“When there are hot deals, even other [investment banks] have difficulty getting any shares from the lead left bookrunner,” said Jay Ritter, a professor of finance at the University of Florida who specialises in IPOs. “If it’s a hot deal and you’ve got the shares to allocate, why give the goodies to your competitors rather than to your most profitable clients?”
SoFi first announced plans to enter the IPO business in March 2021. At the time, chief executive Anthony Noto pointed to the recent “meme stock” mania as evidence of the growing importance of retail traders and said SoFi would “be an underwriter in several IPOs over the coming weeks and months”.
Since then, however, it has only served as an underwriter on five deals, all of which involved special purpose acquisition companies, according to Dealogic data and an FT analysis of SEC filings. Four of the five deals were Spacs led by Chamath Palihapitiya, the serial blank cheque company backer who also helped take SoFi public via the same route.
It has also offered customers a sliver of the shares in a few mainstream IPOs, including Rivian and Nubank in late 2021, and Oddity Tech earlier this year, without being named as an underwriter.
The bulk of the work on Instacart’s listing will be handled by lead banks Goldman Sachs and JPMorgan. Junior underwriting roles are often awarded on the basis of historic links such as previous lending, or a commitment to provide future research coverage.
SoFi chief Noto and Instacart’s chief financial officer Nick Giovanni are both former heads of Goldman’s tech investment banking division and worked closely together while they were at the firm, according to a person familiar with their relationship.
Instacart declined to comment. SoFi did not respond to multiple requests for comment.
Being able to invest in an IPO at its offer price can result in substantial profits. Between 1980 and 2021, investing in newly-listed companies at their IPO price would have returned an average of 37 per cent over the next three years, according to data compiled by Ritter. However, investing at the end of the first day of trading would have returned 20 per cent.
Many groups have tried to “democratise” access to these gains, from SoFi rival Robinhood to traditional brokerages such as Peel Hunt in the UK, and individual companies like the Boston Beer Co, which advertised cheap shares on bottles of Sam Adams lager before it went public in 1995.
However, IPO candidates generally focus their efforts on attracting large asset managers and other institutional investors, fearing that retail investors are more likely to quickly “flip” any shares they receive for short-term profits.
One person working on the Instacart deal said the company was a good fit for retail investors, given the crossover between Instacart and SoFi’s relatively young and affluent customer bases. “This is a consumer product, which a lot of people that are retail investors touch and feel on a daily or weekly basis,” he said.
Angela Lee, an angel investor and professor at Columbia Business School, said “it is obviously good to democratise access to asset classes that are normally difficult to get into”.
However, she was also concerned about the risk of “adverse selection”, with companies only seeking retail support when institutional demand is weak.