Page 153 - Initial Public Offering - An Introduction to IPO on Wall Street

investors where an investor has applied. The following are the different categories of investors
that may invest in an IPO.

8.3.1 Little Guy
In the past, an investor hoping to become a shareholder of the next Google or Facebook's had
a few options: have a friend or family on the inside or sign on with a major investment firm
managing the private placement of the startup company—a stock sale that has not yet gone
public.

Fortunately, this is no longer the case. Today, ordinary investors—often referred to as the little
guy—can invest, often for just a few bucks, in shares of businesses that are just beginning to
get off the ground. However, they should be willing and prepared to take on a whole lot of risk.

The interest of the American public in IPOs has been long-standing and understandably so.
With the buzz around an IPO day—and all the attention that the ‘hot options’ get from the
media—it can be difficult to ignore the thrill and the possibility of getting in on the ground
floor. However, for a very long time, the average investor was a mere spectator, relegated to
watching the IPO day from the sidelines.

Traditionally, ordinary investors have mostly been shut out of the IPO market, waiting for
shares to start trading if they want to buy stocks to get in on the action. This is because IPO
underwriters, investment banks responsible for the sale of shares, often issue the majority of
IPO shares to their largest customers, such as institutional investors, including insurance firms,
mutual funds, and pension funds.
On the rare occasions where brokers approach the little guy about investing in an IPO, such
offers can be met with a lot of skepticism. However, things have started to change recently. For
example, in 2015, an online brokerage company started inviting investors to invest as low as
$250 into some IPOs, while another, established in 2013, promotes IPO openings with
minimum investments of $100.

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