The Fight Over Retail Shares in Anthropic's IPO, and How IPO Allocations Work

Robinhood’s chief financial officer, Shiv Verma, has described the competition among brokerages for retail access to Anthropic’s upcoming IPO as a “food fight,” according to Bloomberg. Anthropic’s amended filing lists Robinhood among the firms that will sell shares to individual investors. Reports suggest the company is considering setting aside roughly 15% to 20% of the offering for retail buyers, with JPMorgan leading US retail distribution. Neither figure has been confirmed, and Verma wouldn’t comment on the number, citing the quiet period before the offering.

If the deal goes ahead before US Thanksgiving, as reported, many individual investors will try to get shares at the offer price. Here’s how that process works.

Who decides who gets shares

In a traditional IPO, the company and its lead banks run a book-building process. Over a week or two of meetings (the “roadshow”), large investors such as pension funds and mutual funds tell the banks how many shares they would buy and at what price. The banks then set the final price and decide how to divide the shares.

Retail brokers like Robinhood play a narrower role. They collect orders from their customers and pass the total demand to the company and its banks, which decide how many shares the retail channel gets. The broker then divides its slice among its own customers, often by lottery or by rules that favour certain account types.

So a brokerage pushing for a bigger allocation is lobbying, not choosing. The final decision rests with the issuer and its underwriters.

Why retail has historically been left out

For decades, individual investors got very little of popular IPOs. Verma said retail used to receive 1% to 2% of hot deals, and 5% was considered generous. Banks favoured large institutions for several reasons: they buy in size, they’re expected to hold shares longer, and they’re valuable clients for the bank’s other business.

That has been changing. Retail investors now account for a large share of US stock trading, and some issuers see their customers and users as natural shareholders. SpaceX reportedly targeted 15% to 20% for retail in its IPO in June, and Robinhood set aside a large portion of its own 2021 offering for its customers. Anthropic is reportedly considering a similar approach.

What to know before placing an IPO order

You probably won’t get everything you ask for. When demand is heavy, retail orders are usually scaled back sharply or filled by lottery. An order for 100 shares might get 5, or none.

You’re agreeing to a price you don’t know yet. IPO orders are typically placed against an expected price range. The final price can land above the range in a popular deal, and some brokers let you set a maximum you’re willing to pay. Read your broker’s terms.

Flipping can have consequences. Some brokers limit future IPO access for customers who sell their allocated shares within a short period after the listing. Issuers want shareholders, not day traders, and brokers want to keep getting allocations.

The first-day pop isn’t a free lunch. If shares jump on the first day, the gain goes to those who received shares at the offer price. Buying on the open market once trading begins means paying the market price, often after much of the jump has already happened. For a company with no history as a public company, as we noted in our look at the S-1, that’s a real risk.

Canadian investors face extra hurdles. IPO allocations for US offerings are usually distributed through brokers that are part of the underwriting group. Unless your Canadian broker has arranged access, you’ll likely only be able to buy once the shares start trading on Nasdaq.

The bigger picture

Verma called the Anthropic offering “a bellwether for the market,” and that seems right. A trillion-dollar AI company going public at a time when investors are questioning how the AI build-out will be paid for will be a test of how much appetite exists for the sector, at both institutional and retail levels.

A larger retail allocation gives individuals a fairer chance at the offer price. It also means more ordinary investors will hold a newly listed stock whose valuation has never been tested by public markets. Getting shares in a hot IPO is exciting. Deciding how much of a portfolio belongs in one is the more important question.