A listener wrote in with a great question. He’s a tech executive, mid-forties, around $18 million invested, and he’d just been through the SpaceX IPO. He put in a $50,000 indication of interest through Schwab and got a 13% allocation. A few months earlier, on a different IPO, he got nothing. Talking to friends, he found allocations were all over the map depending on the brokerage. He wanted to be more strategic, not chasing quick pops, but building an approach around how brokerage relationships, sizing, and allocation actually work. Let’s unpack it.
What Actually Happens When a Company Goes Public
There’s a common misconception that when you buy shares on IPO day, you’re handing money directly to the company. You’re not. That transfer happens earlier, at the offer price, when institutional and early investors agree to pay the company directly for shares. What you’re doing with an indication of interest is telling your broker how much of that early allocation you want. The broker then divides up whatever shares they’ve been given among their clients. In our listener’s case, he asked for $50,000 and got 13%, which isn’t unusual for a hot, oversubscribed deal.
Why Partial Fills Are Normal, and Only for the Deals Everyone Wants
Partial fills happen on the IPOs everyone is excited about. On less popular deals, you typically get your full order filled without issue. The reason the popular ones underprice is well documented: companies going public need their offer price low enough to guarantee full subscription, and underwriters have a real incentive to keep that first day pop healthy. If an underwriter prices a deal too high and it drops on day one, the clients who got in feel burned and stop saying yes to future offers. So underwriters lean toward pricing that produces a pop, historically averaging somewhere around 18 to 20% on the first day. That’s the return worth chasing, not the day trading that happens after the open.
Why Your Brokerage Relationship Matters More Than Account Size
Here’s the part that actually explains our listener’s experience. Schwab is a fine brokerage, but it isn’t the one underwriting these deals. The banks running the actual offering, firms like JP Morgan, Goldman Sachs, or Bank of America, control the bulk of the allocation and reserve much of it for institutional clients or those with deep, long-standing relationships across multiple products and services. An $18 million account sounds substantial until you remember who else is in line: hedge funds asking for $20 million to $50 million or more in the same offering. Building direct relationships with underwriting banks, not just a discount brokerage, is what actually moves the allocation needle.
The Real Math Behind Chasing Access
Before restructuring your banking relationships around IPO access, it’s worth running the numbers. An 18 to 20% average pop sounds attractive, but ask yourself how many IPOs you’d genuinely want to participate in each year. If it’s three or four, spread across a handful of relationships, and each allocation is $20,000 to $50,000, you might pick up an extra $10,000 or so annually. That has to be weighed against the complexity of managing multiple banking relationships, potential lockup periods, and the general risk profile of newly public companies. Try listing the last two or three IPOs you actually wish you’d gotten into. Most people find that list is thin and spread across five or ten years, not concentrated in any recent stretch.
Is This Actually Worth the Complexity?
For most investors, IPO access works better as an occasional perk of an existing relationship than as a standalone strategy worth restructuring your financial life around. The big, exciting names, a SpaceX or an Anthropic, come along rarely enough that building an entire banking strategy around catching them usually isn’t worth the added complexity, the relationship maintenance, or the concentration risk in early-stage public companies. If the access falls into your lap through relationships you already have, take advantage of it. Just don’t let the appeal of a rare, splashy IPO talk you into more complexity than the actual math supports.
This post is adapted from a recent episode of the Scholar Wealth Podcast. For more perspective on IPO allocation strategy, listen to the full podcast episode here.