Colleen Brady had little interest in owning stocks until she received an email offering her the chance to buy shares in the recent initial public offering of movie-theater chain AMC Entertainment Holdings Inc.
“I go there with my kids all the time. They have this great snack bar, and I can buy my tickets in advance,” said Brady, 43, a Freehold, N.J., mother of two. “My husband said to invest in what you know.”
She did, buying $500 worth at the same $18 per-share price that fund managers paid, through a San Francisco company called Loyal3 Holdings Inc.
The startup is out to make tiny amounts of IPO shares available to investors, with as little as $100 to invest, who are now mostly shut out of the process. Loyal3, which underwrites the IPOs alongside Wall Street banks, said it’s the only company with this model.
AMC was Loyal3’s first client, and last month the company sold shares for Santander Consumer USA Holdings Inc.’s IPO.
“IPOs are the bastion of elitism, where people have been locked out,” said Barry Schneider, Loyal3’s CEO. “We think individuals matter.”
The direct-to-investor model comes in the midst of a buoyant IPO market, in which 211 companies went public last year, according to data compiled by Bloomberg.
Institutional investors tend to have a leg up on IPOs, getting invitations to road shows where companies pitch their stocks. Investment bankers also market their deals to fund managers who can buy millions of shares ahead of the offering.
Individuals can buy IPO shares through brokerage firms such as Fidelity Investments, though these typically require large account balances — $500,000 in Fidelity’s case, depending on the type of deal.
AMC’s sale was marketed to the movie chain’s customer loyalty plan, called Stubs. Members could buy from $100 to $2,500 worth of stock.
It’s unclear how many more companies will engage Loyal3 to sell their IPO stock, said Tim Loughran, a finance professor at the University of Notre Dame.
“The big caveat is whether the good IPOs, like Twitter, are going to be doing this,” Loughran said. “If you’re not a perfect company, this could be a good way to get your shares sold.”