Robinhood announced Thursday that it would allow its customers to purchase pre-IPO shares. The feature will be available to all Robinhood customers through a gradual rollout "in the coming weeks."
Robinhood traders will be given the opportunity to review upcoming IPOs, place a request to buy shares in an initial listing price range and finally approve a purchase once the final price has been set. The company said it will not prioritize customers' access to pre-IPO shares based on order size or account value.
In a typical IPO process, investment banks go on a "roadshow" in which they pitch institutional investors on the merits of an IPO investment. Robinhood claims that its motivation for introducing the IPO Access feature is to give everyday investors "the chance to get in at the IPO price" since "most IPO shares typically go to institutions or wealthier investors."
However, IPO Access will likely add to criticism Robinhood faces for enabling traders to make investments without fully understanding the associated risks. There was fierce backlash against the company in June 2020, for instance, when a 20-year-old college student died by suicide after mistakenly believing he owed $730,000 due to a Robinhood options trade.
Companies undergoing an IPO — particularly as of late — often experience wild fluctuations in share price on the day of their trading debut. For its part, Robinhood directs its customers to "read about how the IPO process works" and adds the disclaimer that "IPOs can be risky and speculative investments."
Robinhood is in the process of going public itself. The timing of the IPO Access suggests Robinhood may offer its own pre-IPO shares via the new feature. The company is expected to reveal its S-1 next week, according to Bloomberg.