This article on PrimaryBid is by The Lone Exchanger from Team Monevator. Every Monday sees another fresh perspective from the Team.
Ping! A fresh notification popped up on The Lone Exchanger’s mobile phone.
He glanced down at the screen, read the message, and began his mental calculations…
One of the many frustrations of life as an active retail investor is you’re bottom of the pecking order.
Trading fees are higher and access to research is limited, compared to what the professionals enjoy.
It’s also much harder to participate in company fundraisings.
Technology is slowly changing things, however. And that’s to the benefit of everyday investors like you and me.
Dealing fees have been slashed to zero by apps such as Freetrade. Independent stock research is available on platforms such as Twitter and Substack. There are also more investing podcasts.
As for improving access to company fundraising – enter PrimaryBid.
PrimaryBid is an app-based platform. It enables retail investors to more easily invest in new raises alongside institutional investors.
The service is free to use. Launched in 2016, it already has over half a million users.
PrimaryBid is regulated by the Financial Conduct Authority. It even boasts the London Stock Exchange among backers of its recent $50m fundraising.
Shaking the tin
Some access to fundraising was already made available by existing brokers.
But PrimaryBid offers a far wider selection, and makes the process easier.
When a company wishes to raise money via issuing shares – known as equity financing – it traditionally has several options.
If the company is privately held, it can move onto a public stock market. This happens via an Initial Public Offering (IPO), also known as a flotation.
Here the company employs investment bankers to produce a prospectus and to ‘sell’ the company’s prospects to (traditionally) deep-pocketed institutions. The institutions buy shares prior to an official listing on the stock market.
This pre-IPO activity determines the initial share price when the company goes public. Only then can retail investors usually get in. After the shares have officially started trading on the stock market.
A second route – for companies already publicly listed – involves issuing new shares. (Sometimes called a rights issue or a placing). Placings may go to existing shareholders or to large fund managers.
Due to the logistics of getting multiple investors together, this route has also mostly been limited to large institutions. Occasionally brokerage accounts offer retail investors the opportunity to subscribe. But it’s certainly not standard.
PrimaryBid steps in to make things easier. It connects retail investors interested in a placing or IPO with companies raising capital.
Accessing these offers via PrimaryBid is straightforward.
First you download the app from the Apple or Android app store. You then go through a sign-up process. This includes the usual due diligence and ‘Know Your Customer’ checks.
You will be asked to name your broker and submit your account number. This is so PrimaryBid can make sure that any securities you purchase via its platform end up with your broker.
There are two caveats worth mentioning.
Firstly, your chosen broker must be a partner of PrimaryBid.
Most if not all of the ‘traditional’ stock brokerage accounts are on-board. Fidelity, Hargreaves Lansdown, Halifax Share Dealing, Interactive Investor, Lloyds Share Trading, and X-O are all partnered, among others.
However share trading apps such as Freetrade and Trading212 are not.
The second caveat is that due to HMRC restrictions, securities purchased through the PrimaryBid app cannot be transferred into an ISA or SIPP held at your brokerage. (Note that the PrimaryBid FAQ page implies you can get investments into an ISA or SIPP if you apply via the broker. The broker then applies through PrimaryBid.)
Let’s start the bidding at…
With everything set-up, you can browse existing opportunities. You’ll also be notified on your phone with details of any new fundraising.
Opportunities on PrimaryBid fall into three categories:
- Initial public offerings
- General placings
- Accelerated book builds
For the first category, you will get a period of time to research the opportunity. This includes the publication of a prospectus and often an expected share price range to ponder.
As ever, the devil is in the detail. An IPO prospectus is extremely detailed (no surprise given all the lawyers involved). Expect many devils to be buried.
For example, when leafing through the Deliveroo IPO prospectus, I spotted a large section discussing the risk of countries in Europe classifying riders as employees, rather than as contractors. That’s something you could well have expected to have an impact on margins. A potential red flag!
Listed companies can raise additional cash through placings.
Usually you will be given an outline of how the company will use the cash. Acquiring a rival for instance, or perhaps to make an investment into physical assets. (Real estate, a solar panel farm, or similar).
Generally you will have some time to think about investing in placings. This ranges from a couple of days to a few weeks. Often you’ll find these same offers advertised at your brokerage, too. They can be aimed at a large pool of investors, and aren’t necessarily PrimaryBid exclusives.
Now the category that raises the heartbeat!
An accelerated bookbuild is a swift process. It is generally concluded within a day or so – more often within a few hours. Earlier this year I saw one close within 90 minutes.
An RNS is issued either before or more often after trading hours. This news alerts the market about the upcoming fundraising.
The RNS will detail the amount being raised, how the cash will be used, and sometimes the share price being offered. (Often that’s at a discount to the prior closing price). There will also be additional information, such as whether any directors or major shareholders are participating.
You may not see a share price mentioned. This will be determined by the bids put in by institutional investors. Retail investors should get the same price in the end. However you’re effectively investing blindly.
If there’s high demand your subscription may be scaled back, with priority given to new shareholders over existing ones. (PrimaryBid determines your status by asking whether you are an existing shareholder on subscribing.)
If you choose to invest, you’ll make a payment via your debit card. There can be a minimum investment amount, usually £250.
Upon their admission to the stock market your shares should be speedily transferred to your nominated brokerage account.
PrimaryBid is another useful tool in an active investor’s kit. It offers simple access to opportunities that would otherwise be unavailable to us.
Directly investing through fundraisings can even be way of avoiding dealing charges, because the shares go directly into your broker account.
I’ve used the platform to subscribe to eleven offerings over the past year. The process is fairly slick, although not on a par with the likes of FreeTrade.
One downside PrimaryBid has in common with other apps are notifications designed to grab your attention. The aim is to increase the likelihood of you investing. Be conscious of this. Think before committing any funds – particularly with quick raises such as accelerated bookbuilds.
Placings, IPOs, and accelerated bookbuilds can be complicated. Let’s hear your questions and comments below!
See more articles by The Lone Exchanger in their dedicated archive.