Goldman Sachs knows an IPO ally when it sees one. The investment bank that consistently tops the equity capital markets rankings has enlisted trading platform Robinhood Markets to help it sell shares of Clear Secure in the initial public offering set for this week.
The bank run by David Solomon, along with fellow underwriters JPMorgan, Allen & Company and Wells Fargo, will give as much as 1% of the $455 million deal to Robinhood, which will then offload shares to retail investors through its trading unit. Though Robinhood is only allocated a sliver of the biometric security firm, which is targeting a market valuation as high as $4.4 billion when it prices on Tuesday evening, per news reports, it is enough to be a window into how popular shares might be with retail investors once they start trading.
Robinhood’s platform has been used to bid up stocks like GameStop and AMC Entertainment following chat room-fueled hype. That has made it more difficult for Wall Street’s trading desks to read the market. Several IPOs have been swept up in post-market mania they didn’t foresee. Online insurance broker Snowflake’s shares more than doubled last fall on the first day of trading, and restaurant delivery app DoorDash’s stock rose almost as much. Goldman led both those offerings.
The small handout to Robinhood may only change pricing on the fringes. The underwriters still have to please big clients like BlackRock and other institutions. They may take a less speculative view on a company’s value, keeping the IPO price down. Still, the knowledge that retail investors are eager to buy shares allows Goldman to encourage its client to price its shares more aggressively, leaving less money on the table. The perceived underpricing of IPOs to leave room for institutions to gain in first-day trading is a big reason some technology investors dislike the process.
Meanwhile, Robinhood traders will get a crack at an IPO directly, an opportunity traditionally cornered by Wall Street and its favorite clients. Goldman may be using Robinhood to its advantage, but retail traders are edging into the big league, too.
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