You might consider it a “people’s IPO.”
If the medical robotics company Myomo Inc. goes public this month, as planned, it would be among the first initial public offerings by small companies on a major stock exchange funded not just by institutions but also by small investors, who are typically locked out of such transactions.
“This gives small-cap companies access to a broader range of investors,” said Myomo’s chief executive, Paul Gudonis. “And it allows the general public to invest in IPOs.”
Myomo, a Cambridge spinoff from the Massachusetts Institute of Technology, is trying to sell 2 million shares of stock and raise $15 million to expand its business of selling braces and other products for patients with upper-limb paralysis from strokes or spinal cord injuries.
The sum is tiny, compared with the proceeds from traditional big-ticket IPOs such as that of Snap, the parent company of Snapchat, which in March raised $3.4 billion from institutions like banks and financial firms that bought big blocks of the stock.
While the more open IPOs can be riskier, they level the playing field for individual investors like Larry Pasquale, a Danville, Calif., businessman who regrets having missed out on the action when high-profile companies like Snap, Facebook, and Google went public.
Pasquale has set aside $10,000 to invest in IPOs via a process recently approved by the New York Stock Exchange, in which Myomo — Pasquale’s first investment in an IPO — hopes to trade on its small-cap equity market. He recently purchased 125 shares of Myomo for $7.50 each through the online brokerage Banq.co. His total outlay: $937.50.
“This is good for the little guy,” Pasquale said. “I’m not an institutional investor or a real rich dude who can put in $1 million or more. This gives me a chance to get a big score. If one of these makes it big, I’ll double my 10 grand. Plus, I’m having fun.”
The process for opening IPOs to average investors, before the stocks begin trading, is enabled by a crowd-funding provision known as Regulation A-Plus. It was part of the federal JOBS Act, passed in 2012 to increase funding options for small businesses.
But it took three more years for the Securities and Exchange Commission to sign off on the process. And while crowd-funded IPOs have begun on over-the-counter markets — Elio Motors, which is developing three-wheeled cars, completed the first “Reg A-Plus” IPO last year — established markets have been slow to embrace them.
Such transactions can be highly profitable if a company succeeds, but many newly public stocks fizzle, and money invested in them can evaporate. Ordinary investors aren’t often equipped to evaluate companies not prescreened by financial professionals and take a chance that they’re buying into stocks lacking “liquidity,” the continual trading that lets people sell their shares whenever they want.
“These deals are more risky than a traditional IPO,” said Pamela Greene, a partner at the Mintz Levin law firm in Boston. “If a company’s really good at raising money, they can go the traditional route. These are earlier-stage companies that are smaller and want to raise less money. Investors could end up owning the shares and not being able to sell them.”
Early investors have to be alert to other risks, too.
The parent firm of Banq.co, the online exchange that’s enlisting investors for Myomo and other IPOs, has been sued in an unrelated case. Several investors have accused the firm, TriPoint Global Equities, with steering them to a Ponzi scheme that promised profits from ticket resales to hit Broadway plays like “Hamilton.”
TriPoint has not been charged with helping to engineer the alleged scheme, but it acted as a broker-dealer for the businessmen accused of running it. The firm claims it was a victim itself and lost $2 million in the deal. “We deny and wrongdoing and expect to be vindicated,” said Mark Elenowitz, chief executive of TriPoint. He said his firm’s unwitting role in that deal was unrelated to its work on Reg A-Plus transactions aimed at taking Myomo and other companies public.
Among other companies selling shares to individual investors in Reg A-Plus offerings being managed by Banq.co are Lovesac, a Stamford, Conn., seller of modular furniture, and Yuengling Ice Cream Corp., an Orwigsburg, Pa., super-premium ice cream company owned by members of the family that founded America’s oldest brewery, D.G. Yuengling & Son.
“We’re allowing the crowd to participate in IPOs,” Elenowitz said. “We can find really good companies that have an affinity group of followers who use their products and love the company. These are people who could now become investors.”
Reg A-Plus IPOs managed by Banq.co are being promoted by CrowdfundX, a marketing agency that spreads the word through videos, social media, and Facebook pages geared to potential investors. “If a company has a built-in audience of paying customers, we focus the campaign on that audience,” said Darren Marble, chief executive of CrowdfundX.Robert Weisman can be reached at firstname.lastname@example.org. Follow him on Twitter @GlobeRobW.