Good morning Term Sheet readers, it’s finance editor, Jeff John Roberts, pinch-hitting for Allie. If you look closely at the tombstone for fitness ring maker Oura’s IPO, you’ll see something unusual. You might have to squint, but there at the bottom, as the 18th of 18 underwriters, is an unfamiliar name: Robinhood, the app once known as a place for kiddies to YOLO trade, which is now sitting at the table with the likes of Goldman Sachs, Morgan Stanley and J.P. Morgan.
The Oura public offering itself, which Allie described this month as the year’s
hottest imminent IPO, was suddenly postponed on Tuesday (more on that below), but that does nothing to undercut the significance of Robinhood’s role. The company’s underwriter debut is a big deal since it marks the latest milestone in an accelerating trend of the last five years: Retail investors taking on a major role in capital markets.
The trend took off in 2020 when a subset of bored young people, shut in by the pandemic, decided to blow their stimmy checks on something besides weed and DoorDash, and dove into stock-buying instead. This produced memorable moments like the GameStop short squeeze, and gave rise to investing celebrities like Roaring Kitty, who bellowed into his laptop microphone while sharing his portfolio on YouTube.
The retail army’s outlandish behavior and eccentric stock choices—which included bankrupt Hertz and Bed Bath & Beyond—led many on Wall Street to initially dismiss them as fools who would soon be gone. It didn’t turn out that way. In the years since the pandemic, retail investors have not only stuck around, but have grown more powerful and more sophisticated. This was reflected in this year’s SpaceX IPO where the allotment reserved for retail exceeded 20%.
These developments have in turn led Wall Street to take retail more seriously, including by letting Robinhood come to the table as an underwriter, a role that gives it a say in the IPO process and also a cut of the fees (albeit a very small one). This is different from past IPOs where retail brokerages got a tranche of shares to distribute, but held an entirely passive role.
Part of this has come about as a result of retail brokerages advocating for their customers to get first dibs on IPO stocks, rather than having to buy the shares at a premium from the connected clients of big banks. But it is also a result of companies themselves coming to value retail investors, and not just as a way to fill out their IPO order book.
According to Scott Coyle, the CEO of Click Capital Markets, those taking their companies public are coming to view retail investors as a source of stability for their stock. Unlike institutional investors, who rely on algorithms to dump underperforming shares at the first sign of trouble, Coyle says retail buyers are more likely to stick around in good times and bad. He adds that CEOs of customer facing companies, including the head of Jersey Mikes, have also come to view having retail buyers as an opportunity to deepen loyalty to their brand.
The bottom line is that retail stock buyers, who may have arrived to capital markets as tourists, are now a permanent and influential class of investors. As for Oura, the company gave an unsatisfying explanation for its decision to delay its offering, claiming it foresaw “strong demand” but decided to wait due to “uncertainty in the IPO market.” Some market watchers, meanwhile, asked if investors soured on the IPO because the company was treating it primarily as an opportunity to unload secondary shares rather than as a way to raise capital. Others cited a tougher IPO climate due to higher interests and broader uncertainty as the market waits for the next two mega-offerings, OpenAI and Anthropic, to drop. We will find out soon enough.
Jeff John Robertsjeff.roberts@fortune.com @jeffjohnroberts
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