When I worked at Goldman Sachs and Credit Suisse, we would occasionally bring a hot IPO deal to market. During the company roadshow, we’d take management around to meet one on one with our largest investors and clients. Sometimes the IPO was so in demand that many clients could not even get a one on one, and instead had to settle for a group breakfast, group lunch, or group dinner.
After meeting management, clients would submit their indications of interest. As the lead book runner of the IPO, we decided how much of an allocation each client would get. And let me tell you, that process was more difficult than deciding which friends and relatives to leave off the guest list for a limited budget wedding.
Some clients got zero shares, which made them understandably angry. But they were zeroed because they either did too little business with us or were known for flipping shares for a quick profit soon after trading began. Think small hedge funds.
Other clients received far more than the average allocation. If the IPO was ten times oversubscribed, the average client might get 10 percent of their request. But our biggest clients might get 30 percent to 70 percent of what they asked for, based on the business they generated. Think Capital Group, Fidelity, and BlackRock.
When trading began, there was often an immediate pop in the share price, delivering instant gains to these institutions. In other words, the wealthiest clients who paid the most in fees often got the largest allocations and the greatest returns.
You Are Not Rich or Famous Enough to Get a Large Allocation in a Hot IPO
Trying to get a meaningful allocation in a hot IPO is a futile process for the average retail investor. Without enormous wealth, fame, or connections, you simply have no chance. Take Figma (FIG) for example. The design company raised $1.2 billion in its IPO, valuing it at $19.8 billion, the same price Adobe had tried to buy the company for a few years earlier.
Figma and its book runners allocated a tiny portion of shares to retail trading platforms like Robinhood. If you were a Robinhood client, you could indicate your desired allocation, but you would be filled entirely at their discretion. With Figma’s IPO forty times oversubscribed—$48 billion in demand for $1.2 billion in shares—the average allocation was just 2.5 percent of what was requested. In reality, many retail investors got 1 percent or less.
Imagine requesting 1,000 shares worth $33,000 and getting just one share worth $33, like one investor below who had $10 million with his broker. What a slap in the face!
Or maybe you were luckier, and got 1 share out of a 600 indication of interest like this fella below. But who cares? 1 share doesn’t do anything for anybody at $33/share.
Examples like these are everywhere. Book runners know that many clients and individuals play the game of inflating their indications of interest, so they tend to cut allocations even further to offset the bluffing.
Big Gain On IPO Day
Figma’s IPO ended up popping by 333 percent on its first day of trading, closing at $122 a share. The bookrunners knew it would likely perform well because they had already seen strong demand from institutional clients willing to buy at even higher prices.
If the bookrunners played their allocation cards right, they enriched their most valuable clients by giving them more than the average allocation and making sure those clients knew it. In return, those clients should reward them with more business.
It is not written down anywhere, but that is how business is done. You take care of your clients, and your clients take care of you. Imagine getting a $10 million allocation and making $27 million in one day. It’s like free money if you’re already a big client.
The Johnny Come Lately IPO Investor
After a 333 percent pop on day one, would you aggressively buy a stock trading at ~600 times forward earnings? Probably not. Yet plenty of retail investors get swept up in the hype and jump in. Why not? YOLO for even greater riches.
The problem is that when it is in the headlines, it is already in the price. Once a company is public, the advantages and relative safety of being an early investor vanish. You are now at the mercy of market sentiment and unpredictable outside events.
Say you bought Figma after its IPO jump to $122. The next morning you might have been thrilled to see it spike to $133. But by the end of the day, it had fallen more than 20 percent from that high. That is a rough ride for a new shareholder.
Nobody knows where Figma’s share price will go from here. But if your entry was on IPO day, your average cost is somewhere between $107 and $122 a share at a 600 times forward P/E multiple. That is a steep hill to climb for positive returns. The company now has to set ambitious revenue and earnings targets and beat them consistently to justify that valuation.
Companies Are Staying Private For Longer
In the past, investing in a company during its IPO was safer. For example, Google was a private company for six years (9/1998 – 8/2004) before it IPOed, raising $1.67 billion at a $23 billion valuation. If you invested in Google during its IPO and held on until today, you would have obviously done very well.
But today, companies are staying private for longer with more of the gains accruing to private investors. As a result, it’s only logical to allocate a larger percentage of your investable capital to private growth companies. I aim for between 10 percent to 20 percent.
The Better Way to Invest in Hot IPO Companies
Do you want to fight for IPO scraps and overpay once a growth company goes public? Or would you rather own shares before the public bidding frenzy even begins? Most rational people would choose the latter.
The reality is that many investors either do not understand how the IPO process works or do not realize there is a more strategic way to gain exposure before a company lists. A big reason for that is most people are not accredited investors and are therefore locked out of private company and private fund opportunities.
If you are accredited and want to own stakes in fast-growing private companies—many in the tech sector—you can allocate a portion of your capital to venture capital funds.
The traditional model typically requires a minimum investment of $100,000 to $200,000 and relationships with the fund’s general partners to even get in the door. Once in, you generally commit capital over three years, hope the partners choose wisely, and pay two to three percent in annual fees plus 20 to 35 percent of profits.
Even in venture funds, who you are determines how much you can invest. If a fund is run by a general partner with a stellar track record, demand to invest can exceed the fund’s target raise.
Sequoia Capital, one of the best venture funds in history, is a prime example. Only employees, jailed star founders like Sam Bankman-Fried, large institutions, and close friends and family typically get in—and their allocations are still often reduced.
The Venture Capital Funds That Invested in Figma
Here are some of the VC firms that backed Figma before its IPO and the returns they saw at the offering price. Most investors would not have had the chance to participate in these funds. And even if you did, your allocation would depend heavily on who you are.
Every venture fund sets aside a portion for friends and family as a goodwill gesture and strategic move. Fundraising can be tough, and getting on the capital table of the next hot startup is fiercely competitive. If a VC is raising a $500 million fund, they might earmark $50 million for friends and family.
A personal finance blogger and two-time national bestselling author might be invited to invest $150,000 in such a fund. That investor could add value by promoting the fund’s portfolio companies or aiding future fundraising.
Meanwhile, the CEO of a public company with a strong track record of angel investing could be offered the chance to invest $1 million to $2 million in the same fund. Their involvement elevates the fund’s profile, opens doors to promising startups, and can even lead to strategic partnerships. If appropriate, the CEO’s company might even become a major client for one of the fund’s investments, e.g. Microsoft being an investor and customer of OpenAI.
Demand For Becoming A LP In These Venture Capital funds
Given the success of the Figma IPO for these funds, demand from individuals and institutions to invest in future vintages will only grow. The venture capital firms will then have to decide how large a fund to raise and how to allocate space among investors.
I am personally invested in three vintages of one of the venture firms that backed Figma. Unfortunately, my investment amounts in each are not large enough to create truly life-changing wealth if another Figma emerges. Part of that is because I have a relatively small investment amount ($140,000 – $200,000 each). The other part is that my definition of “life-changing money” has shifted upward since changing my life for the better in 2012, when I left my job.
The Better Way to Invest in Companies With Promising IPOs
Instead of scrambling for scraps during an IPO or paying inflated prices once a company lists, I prefer to invest while the business is still private. As a private investor, here are the key decisions you must make:
- Choose the fundraising stage wisely.
Not every private company makes it to an IPO or has an enriching liquidity event. Historically, Series B or C rounds tend to offer the best balance between risk and reward for companies that could eventually go public. - Identify the right company or venture capital firm.
This is easier than most people think. Data on VC firm performance and company growth is widely available. The challenge is gaining access. Being an angel investor is extremely difficult given you often don’t get the best looks. - Network and provide value.
Money is abundant. What is scarce is value-add capital—investors who bring expertise, connections, or platforms that help a company grow. To get into top-tier opportunities, you must offer something more than a check. - Be patient.
Once you secure an allocation, you fund capital calls, provide support where possible, and wait—often 5 to 10 years—for liquidity events.
An alternative approach, and the one I am pursuing more now, is to invest in an open-ended venture fund that already owns private companies I want exposure to. With no gatekeeping or throttled allocations, I can decide when and how much to invest. If I ever need liquidity, I can sell shares.
Not Participating In The Hunger Games for IPOs
I doubt most retail investors had even heard of Figma before its IPO. But I am confident far more people know OpenAI, Anthropic, Databricks, and Anduril. If and when these companies go public, I expect their IPOs will be just as oversubscribed as Figma’s.
As a private investor in these names through Fundrise Venture, I will not have to beg for IPO shares. I will already own them. When they go public, I will be on the receiving end of the liquidity event, not chasing it in the open market. I vastly prefer this position. And the amazing thing is, everybody can position themselves in the same way given anybody can invest in Fundrise Venture. It’s just that not everybody pays attention or reads sites like Financial Samurai.
The difference in opportunity between private and public investing is staggering. And I do not expect that gap to close anytime soon, because most people stick to index funds and ETFs. That’s perfectly fine as it’s a proven path to steady wealth building. But I enjoy the calculated risk of chasing multi-baggers.
I caught my first one during the Dotcom bubble in 2000, when a 50x return in VCSY gave me the down payment for my first San Francisco property in 2003. That win opened my eyes to what’s possible. I have had plenty of losers too, but that is part of the game when you reach for outsized returns.
Chasing Hot IPOs Is a Tough Way to Make Money
Trying to get a meaningful allocation in a hot IPO as a retail investor is like bidding on a fully remodeled, panoramic view home on a triple-size lot in the most desirable neighborhood. Everyone wants it, and the odds are stacked against you in a crazy bidding war.
If you want better odds, you need to change your approach. That means gaining exposure before the crowd even knows the opportunity exists. Instead of waiting for the hot property to hit the market, why not send personalized, handwritten letters to off-market owners to see if they’d be willing to sell? Or hire a top agent with access to private listings for a first look.
Outperforming in investing requires access, patience, and a willingness to take calculated risks. Build your network, create value, and enhance your reputation to gain access to private investment opportunities.
Or, you can skip all that and just invest in an open-ended venture fund which owns companies you want to invest in.
After Figma, the next company I’m most excited about seeing go public is Rippling, also based in San Francisco. You’ve probably never heard of it either. It’s in the HR software space. However, for those who know the backstory, it’s a fascinating tale of redemption and growth. If it does IPO, I’ll be sure to share how it goes!
Invest in Private Growth Companies
Companies are staying private longer, which means more of the gains are going to early private investors rather than the public. If you do not want to fight in the “Hunger Games” for a tiny IPO allocation, consider the Fundrise Venture instead.
Roughly 80 percent of the Fundrise venture portfolio is in artificial intelligence, an area I am extremely bullish on. In 20 years, I do not want my kids asking why I failed to invest in AI or work in AI when the industry was still in its early stages.
The investment minimum is only $10, compared with most traditional venture capital funds that require $200,000 or more—and that’s if you can even get in. With Fundrise Venture, you can also see exactly what the fund is holding before deciding how much to invest. You don’t need to be an accredited investor either.
For new investors, Fundrise currently offers a $100 bonus if you invest between $10,000 and $24,999, and a $500 bonus if you invest $25,000 or more. I did not realize this until I opened a new personal investment account earmarked for my children, so I decided to invest $26,000. This is on top of the ~$253,000 I have invested ($100,000 added in June 2025) through my corporate account.
Fundrise is a long-time sponsor of Financial Samurai. I am thrilled to have a partner I both believe in and invest in myself. I have met with and spoken to Ben Miller, Fundrise’s cofounder and CEO, multiple times, and our investment philosophies are closely aligned.
