Shaquille O’Neal wants to recruit more individuals to invest in IPOs at a time when more and more of the deals are turning out to be air balls.
The legendary basketball payer is investing in Loyal3, a brokerage firm that wants to give more individual investors access to initial public offerings, according to The Wall Street Journal. Shaq is also joining the San Francisco company’s advisory board and said he will help promote the company’s mission.
Loyal3 was started three years ago, and is run by Barry Schneider, a former golf company executive. Loyal3’s executive vice president Bill Blais is a long time Wall Streeter, and a former Goldman Sachs and Morgan Stanley investment banker. Loyal3 doesn’t run its own deals. It partners with other investment banks to get a small chunk of an IPO, typically 5%, that it then markets to individual investors. Wall Street has typically doled out IPO shares to its best customers, usually large investment funds and rich investors. Instead, Loyal3 sells the shares it receives on a first-come, first-serve basis to investors with as little as $100 to invest, and for no commission. Loyal3 says companies like to have the brokerage in on their deals because individual investors tend to be more loyal investors than large institutions.
Despite the highly sought after nature of IPOs, they tend to be risky investments, and Shaq is running into the IPO game at a time when the quality of many of the most recent deals is clearly looking deflated.
Of the 37 companies that went public in the first quarter of the year, just 10% had operations that were turning a profit, down from 43% in 2013. And the performance of the deals has waned. Shares of the average IPO have risen just 15% this year. That’s better than the market, but far less than 40% return of two years ago, though that is based on full year.
Many noteworthy IPOs have tumbled recently. Shares of Etsy have fallen nearly 50% from where they closed on their first day of trading. Etsy also set aside a chunk of its IPO shares for individual investors, selling 5% of its shares online through Morgan Stanley. Etsy also sought to limit the number of large investors in the deal. Loyal3 was not involved in the offering. Some have blamed the unusual structure of the IPO for why the shares haven’t done so well. Other IPOs this year, like that of cloud company Box, have also been duds.
Loyal3 has been involved in 13 IPOs, including some high profile deals like camera company GoPro (GPRO), shares of which are up nearly 150% from its 2014 IPO. Pet Insurance company Trupanion, another deal Loyal3 has been in on, have not done as well, down 20% from it’s IPO price. It’s not clear how well Loyal3’s deals have done overall. Loyal3 does not include its complete list of IPO deals on its website. The company did not respond in time to comment for this piece.
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