Buy Pre-IPO Shares in HomeUnion and ShiftPixy Now
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One strong area of interest from our readers is in having the opportunity to buy shares in a startup before they actually have an IPO. These are also referred to as “pre-IPO shares”. The rationale is that if you buy shares in a company before they IPO then the shares are likely to trade higher post IPO. Last year we took a look at all the 1-day returns for pre-IPO shares of companies that were offered by Loyal3 in 2015:
Those are some pretty compelling numbers. But don’t just take out word for it. Here’s what Renaissance Capital has to say about the average first day pop for IPO shares across the past 10 years:
As you can see, in one day’s time the returns you would have realized are quite astounding. We actually got in on a few pre-IPO shares for the GoPro IPO and can assure you that we made about +49% on those shares by selling them the first day they began trading. Note that we are not recommending that you should become a speculator. We’re investors, not speculators. With that said, it’s an interesting notion and we are always being asked by readers how to buy pre-IPO shares in companies that are planning to IPO so that’s why we’re covering this.
One way to buy pre-IPO shares is through Motif Investing. Now we love Motif Investing for many other reasons than just the ability to buy IPO shares, and up until recently, we thought they just said that to attract more clients. Now, they’re actually offering pre-IPO shares in two companies. These two companies don’t fall under the 30 emerging technologies that we write about here on Nanalyze, but we know there is enough interest in pre-IPO share offerings so we’re going to cover this. The two companies are HomeUnion and ShiftPixy.
HomeUnion
Founded in 2009, California startup HomeUnion took in around $21.5 million to develop a platform that gives investors a simple and trusted way to invest in real estate. The best way to describe what they do is “crowdfunding for real estate investing” and here is how that differs from a REIT:
Although a REIT (Real Estate Investment Trust) invests in real estate there are many ways in which Real Estate crowdfunding is different from a REIT. In a REIT you don’t choose the real estate investments, with HomeUnion you do. You have visibility and choice. A REIT tracks very closely to the stock market so you really don’t get real diversification; it’s the same roller coaster.
That statement we’re going to have to disagree with. REITs over the long term provide a diversification effect that increases over time when compared to equities. Sure, it’s nice to choose what geographic location you’re investments are located in and have some control over the process but after a cursory look, we’re still okay with our allocations to REITs. Nonetheless, HomeUnion has about $36 million in assets under management which means that they have taken that much in for realty investments from investors so far. It’s an interesting business model which follows the popularity of crowdfunding.
ShiftPixy
Founded only in December of 2015, this means that ShiftPixy has been in operation for just one year. The Company is a “temporary staffing service provider that contracts with clients with large contingent part-time workforce demands, primarily in the restaurant and hospitality industry, to become the employer and provider of workers to these clients primarily for part-time shift work“. That business model seems like a good one given that for the 9 months ended May 31 2016, they have taken in $15.6 million in revenues with losses of only $375 thousand. That is really impressive. Presently they serve 253 clients with an aggregate of 4,067 work site employees. They hope to raise up to $46 million to rapidly expand their business. Like many of these “on demand economy” companies, there are few barriers to entry and it’s whoever scales the fastest that will ultimately win.
We’re not overly excited about either of these pre-IPO offerings but we decided to give Motif Investing a whirl and pick up the minimum number of shares in each, just to see how the process went. The process was totally smooth and you can ask for an allocation of up to $10,000 USD in each company.
Conclusion
So the way that things work in the world of finance is that there is no free lunch. All IPOs do not trade higher immediately following IPO. However as an investor, if you were looking to buy shares in a company anyway, this is a good way to buy them.
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Motif only works for Americans.
Any suggestions for a Canadian?
Good question Burton.
Two things to love about Motif Investing; buying pre-IPO shares and creating your own ETFs. No broker we know of anywhere offers the mini-ETF functionality Motif offers. For pre-IPO shares, some other brokers do but it’s hit or miss on them. For Canadians, I think the best option is to try and get a U.S. address. Not sure where to begin on that.
Both of these IPOs were pulled citing the following:
Thank you for placing your conditional order for the ShiftPixy IPO. Due to the slower activity in the IPO market during the Holiday season, the Company has decided to postpone the IPO at this time. As a result, your conditional order has been cancelled and any reserved funds are available in your Motif brokerage account.
ShiftPixy expects to file financial statements for fiscal 2016 as well as fiscal 2017 Q1 in the coming weeks, and now anticipates launching their IPO by the end of January 2017.
The same was said for HomeUnion except that they aren’t saying when they are coming back to the market.