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SoFi, the Nasdaq-listed fintech, is making its first mainstream IPO nearly two and a half years after it first claimed it was “just weeks” away from breaking into a field dominated by big investment banks.
The San Francisco-based company is working towards listing grocery delivery app Instacart, which securities filings say is expected to occur earlier this month. According to two people involved in the transaction, the company intends to offer shares to users of its retail investment app.
Landing a role in one of the most high-profile US IPOs of the year is a milestone for Sofi, but the slow pace to get there highlights the challenges numerous efforts to improve retail access to IPOs have faced.
“If there are hot deals, others too [investment banks] are struggling to get shares from the leading left bookrunner,” said Jay Ritter, a professor of finance at the University of Florida who specializes in IPOs. “If this is a hot deal and you need to allocate the stocks, then why pass the tidbits to your competitors rather than your most profitable customers?”
SoFi first announced plans to enter the IPO business in March 2021. At the time, CEO Anthony Noto cited the recent “meme stock” mania as evidence of the growing importance of retailers, saying SoFi would “underwrite several IPOs.” in the coming weeks and months”.
Since then, however, the company has only underwritten five deals, all of which were special-purpose acquisition companies, according to data from Dealogic and an FT analysis of SEC filings. Four of the five deals were Spacs led by Chamath Palihapitiya, the serial blank check backer who also helped take SoFi public in the same way.
SoFi CEO Anthony Noto worked with Instacart’s CFO when they were at Goldman Sachs © Alex Flynn/Bloomberg
The company has also offered clients a portion 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.
Most of the work on Instacart’s listing is being done by leading banks Goldman Sachs and JPMorgan. Junior underwriting roles are often filled on the basis of historical connections, such as previous credit history or a commitment to provide future research coverage.
SoFi CEO Noto and Instacart CFO Nick Giovanni are both former heads of Goldman’s tech investment banking division and have worked closely together during their time at the firm, according to a person familiar with their relationship.
Instacart declined to comment. SoFi did not respond to multiple requests for comment.
The ability to invest in an IPO at the asking price can result in significant gains. Between 1980 and 2021, investments in newly listed companies at the IPO price would have yielded an average return of 37 percent over the next three years, according to data compiled by Ritter. However, an investment at the end of the first trading day would have yielded a 20 percent return.
Many groups have tried to “democratize” access to those profits, from SoFi competitor Robinhood to traditional brokerages like Peel Hunt in the UK, to individual companies like Boston Beer Co, which prior to selling cheap shares on bottles of Sam Adams -camps publicly advertised in 1995.
However, IPO candidates generally focus their efforts on attracting large money managers and other institutional investors, fearing that retail investors are more likely to quickly “flip” the shares they receive for near-term gains.
A person involved in the Instacart deal said that given the overlap between Instacart and SoFi’s relatively young and affluent customer base, the company is well suited to retail investors. “This is a consumer product that many 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, “Obviously, democratizing access to asset classes that are difficult to get into is a good thing.”
However, she was also concerned about the risk of “adverse selection” as companies only seek retail support when institutional demand is weak.
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