What You Need to Know About SoFi’s IPO Offers
SoFi is shaking up retail investing and allowing its Members to purchase shares of companies before they debut on the publicly traded stock market.
Institutional investors and high-net-worth individuals can typically buy IPO shares at the offering price, while in some cases, retail investors are limited to buying shares in the “secondary market,” a market like the New York Stock Exchange or Nasdaq.
Buying at the Pre-listing Stage
Buying IPO stocks at the offering price is usually only available to institutional investors, such as mutual funds or hedge funds, or high-net-worth individuals.
Buying at such a price and prior to the stock opening on major exchanges allows investors to benefit from potential favorable price movement on the first day of trading that may be sustained, although such a move is not guaranteed. Indeed, IPOs and SPACs are inherently risky and can be prone to volatility and downturns.
Recommended: Why Are SPACs Suddenly So Hot?
Wait, What’s a SPAC?
Special Purpose Acquisition Companies (SPACs) are shell companies that don’t have any operating business. Instead, they go public on the stock market with the intention of buying an operating business that’s still private. The sponsors behind a SPAC usually have two years to find an acquisition target. Once the SPAC finds a target company to purchase, the SPAC and the business merge, taking the private business public through the process.
Almost all SPAC shares when they debut in the public market are listed at $10 each. The money from the IPO is then placed into a trust and kept there until a target company is found.
It’s important to know that the cash in the trust is not released until after the target company is found or until the two-year time horizon to find an acquisition ends without a deal. Investors can trade the units in the open market before a merger announcement but are at risk of market fluctuations that could send the share price below $10.
Once a target is announced, SPAC shareholders do have a right to vote on the merger. If it’s still approved and they don’t like the deal, they can opt out and get their units redeemed. So they’ll get their $10 per unit back. If no deal is ever found within the two-year time frame, then the SPAC returns the funds raised in the IPO to its shareholders.
How Members Can Participate in the IPOs at the Pre-Listing Stage
SoFi Members will be able to indicate their level of interest (after answering some preliminary questions) on the SoFi app (Invest tab > IPO Investing). This Indication of Interest or IOI helps issuers gauge and fulfill demand, but it’s non-binding and does not represent commitments. In other words, SoFi Members will not be obligated to actually purchase the shares before the IPO date.
To participate before the listing, SoFi Members will need to download the SoFi app, go to the Invest tab, and tap on IPO Investing. There, SoFi Members will be asked to input the number of shares they are potentially interested in purchasing. This is to help SoFi gauge demand and allocate the number of shares or SPAC units to interested buyers. A Member’s IOI also serves as a sign-up for notifications on order day.
Investors should carefully read the IPO prospectus in this period between their IOI and the listing of the shares. SPACs do not have an operating history to evaluate, but investors can read the background of the SPAC’s sponsors.
Recommended: What You Need to Know About SPACs Before You Invest
When Members Place Binding Orders (After Indicating Their Interest)
On the day before the opening, SoFI Members will be able to place orders to buy shares or SPAC units. SoFi’s Invest platform will send alerts when you can place an order. SoFi Members can go to the IPO Investing tab and pick which IPOs or SPACs they would like to purchase.
How Many Shares a Member Can Buy
SoFi Members can indicate as many shares as they want to purchase.
When it comes to SPACs, Members may need to purchase enough units to equal a whole warrant. This is because each unit includes a share and a fraction of a warrant. So if a unit has one-fourth of a warrant, the Member may need to buy units in increments of four. So hypothetically, while 400 or 404 units is an acceptable order number, 403 may not be.
It’s also important to understand that SoFi may not be able to fulfill every order, given the limited quantity of IPO shares or SPAC units. Additionally, Members must have sufficient funds in their Active Invest accounts to cover their order. (That said, SoFi offers up to $5,000 in instant funding.)
Who Can Participate
Only SoFi Members with at least $3,000 in their SoFi Invest account will be eligible to purchase. If you are opening an Invest account, keep in mind it typically takes three business days for funds to settle.
Also, it should be noted that both Active and Active IRA accounts are eligible to participate in the offering. Additionally, the $3,000 requirement is in the aggregate–so a Member could have, say, $2,000 in an Active IRA account and $1,000 in an Active account and be eligible to participate.
What About SoFi Members Who Do Not Have Invest Accounts?
Members who have loan, cash management, credit card or Relay accounts with SoFi will need to open an active Invest account in order to participate in a new issue. They’ll also need to have at least $3,000 across their Invest accounts.
If they are moving funds from their SoFi Checking and Savings® account, the transfer will take place the same day. If funds are coming from elsewhere, they should give the transfer three business days to settle.
How Shares Will Be Allocated
Allocation of shares or units on the day of the listing will be based on a number of factors, but some of the considerations SoFi will make include the size of a member’s order request and the total account value that a member has in their SoFi Invest accounts.
Why They’re Called SPAC Units–and Not Shares
Before SPACs go public, the investors who buy in during the pre-listing process are given “units.” Those who buy shares after the listing on the stock market are given regular shares.
Each “unit” includes a share and a fraction of a warrant. A warrant gives holders the right to purchase more shares at a set price on a later date. Warrants are given as additional compensation to pre-listing SPAC investors for agreeing to have their capital held in a trust until the merger.
Fifty-two days after the IPO, the SPACs’ shares “separate” from the warrants in the units. This allows unit holders to trade the warrants separately. The fees for trading warrants, however, are usually more sizable than the fees for trading shares.
After a merger is completed, the warrants become exercisable at their strike price, typically $11.50 in SPACs. This means that if the shares of the combined company are trading higher than $11.50, investors can exercise their warrants and buy additional shares at $11.50. If the shares are trading higher than $11.50, the investors can sell and pocket the difference between the exercise price and the share price at the time.
Only whole warrants will be exercisable however, and investors should know there can be fees generated from exercising them.
Selling Shares After the IPO
SoFi won’t restrict the sale of shares or units by Members after the IPO listing.
However, if a SoFi Member wishes to sell their shares or units prior to the 120th day of trading, SoFi may charge a $50 fee.
In addition, SoFi Members who sell their SPAC units within the first 30 days will be considered “flippers” and be unable to participate in the IPO process for 180 days after the first occurrence of flipping, 365 days after the second, and permanently after a third.
Timeline for Participating in an IPO
Here’s a timeline for how to participate in SoFi’s IPO offerings.
• Days 1 – 15: First, Members can indicate interest in investing in IPOs on the SoFi Invest IPO Investing tab. By indicating interest SoFi Members are by no means pledging to buy shares or reserving any shares for themselves. Interested investors will also be able to read the prospectuses. The period to indicate interest is typically 15 days.
• Day 12: Since funds take three business days to settle, new Invest Members should open an account and initiate the transfer of funds three business days before the offering date and four business days before the date the IPO will commence trading. (So if Day 12 falls on a Saturday or Sunday, the funds transfer should be started on the prior Friday.)
• Day 16: The day before the listing, SoFi Members can place orders to buy shares or units via the Invest platform. It’s important to know that because of supply and demand issues, some orders may not be entirely filled. Also, the window to place orders is only from 8 a.m. to 3 p.m. ET.
IPO Listing Day
• Day 17: Shares of the IPOs will begin trading at 9:30 a.m. ET. Before then, between 8 a.m. and 9:20 a.m ET, Members will be notified of their unit allocation, and their purchased shares will appear in their accounts.
• Day 47: Members can sell their shares without being considered “flippers.”
• Day 69: Fifty-two days after a SPAC IPO, warrants of the units will separate from the shares, making them eligible to be bought and sold in the open market.
SoFi Members will get access to unique opportunities to invest in IPOs or SPACs at the offering price. Investing in IPO companies during the pre-listing stage is usually an opportunity only available to institutional investors like mutual funds, hedge funds and high-net-worth individuals. However, SoFi is making these types of investments possible exclusively for Members.
Investors who are not yet SoFi Members can become one by signing up with SoFi Invest. Once they have an account and have downloaded the SoFi mobile app, they can go to Invest > IPO Investing to indicate their interest in the companies that are debuting on the stock market.
SoFi Invest refers to the two investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA(www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of SoFi Digital Assets, LLC, please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Bank, N.A.
Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. IPOs offered through SoFi Securities are not a recommendation and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation.
New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For SoFi’s allocation procedures please refer to IPO Allocation Procedures.