I bought pre-IPO shares of a company through my Rocket Dollar account. What to do once they go public in an IPO?

2024 - Update

In order to receive service for IPO positions, your account must be set up at our custodian, Digital Trust. Rocket Dollar does not have IPO support for any legacy custodian. If an IPO is coming and you are still with one of Rocket Dollar’s legacy custodians, please reach out to us to get that updated ASAP to our new custodian.

Take Note

Customers that typically expect an IPO is easier to do with a direct custodial account than a checkbook IRA, as it’s easier to convert the position to a public brokerage custody, and transfer it. 

If you have a checkbook IRA or Solo 401(k), please contact Rocket Dollar so that we can best service you. Our custodian can still support porting Checkbook IRA positions to public markets, but it is a more involved process. 

Partner Bank Custody Step-by-Step Process:

1. Every IPO (Initial Public Offering) has a small group of professionals they assign you at the IPO servicing firm. For a hypothetical example, you invest in SpaceX before it becomes a public company. The IPO in the public markets is quickly approaching, and SpaceX investor relations are beginning to communicate to all IPO investors.  Your IRA and you will get a letter saying, “you can onboard, service, and trade your IPO shares at Merrill Lynch, Goldman Sachs, and Fidelity with their contact listed below.”  There is usually no flexibility past the brokers SpaceX has chosen because only those teams know and have permission to onboard specific IPO investors. Do not just call any brokerage, but follow the instructions in your letter or investor relations page of the company you invested in. These brokers are set by the company that is issuing stock and have been compensated in order to assist you with services before, during, and after the IPO. Please notify Rocket Dollar as soon as you get an IPO notice letter.
2. Rocket Dollar’s custodian, Digital Trust, cannot hold public securities directly but has a partnership with a service provider that can. When Digital Trust cannot hold the asset, they will help you port it over to that service provider. Please note Checkbook IRAs may need additional time and assistance because of their unique titling requirements.
3. You will be able to sell the position through a DocuSign approval process. At this time, Rocket Dollar does not have a live public securities trading portal. Some clients might be fine keeping the position in this format or may request a special transfer to another IRA that they already have at a public securities brokerage company (Fidelity, Vanguard, Charles Schwab, etc).

Digital Trust Custody Step-by-Step Process:

1. Notify Rocket Dollar, who will connect you to the right contacts at Digital Trust
2. Digital Trust will inform you on the date that their custodian can no longer hold the asset, and when it will need to be transferred to a partner that can hold public assets or another IRA.
3. Digital Trust will then be able to service your position in two different ways
   1. Allow to buy/sell shares with a DocuSign signature
   2. Allow you to rollover your public stock position to another IRA. 
4. In the future, when you choose to sell the shares, you can roll them back to Rocket Dollar for another alternative deal.

What is an IPO?

IPO stands for Initial Public Offering. An IPO starts when a private company issues shares of stock to be sold to the public, which then means the company would no longer be privately owned. However, it is owned by investors with a certain amount of the company’s stock that they acquired while it was in the private markets. One of the main reasons why a company chooses to do an IPO is to acquire a large amount of capital, and they do this through a series of steps:

1. They obtain approval by writing something called an S-1 document to the SEC.
   1. For a company to go public and do an IPO it must first get the permission of the Securities and Exchange Commission (SEC) by writing an S-1 document which basically is a book about what the company is doing and why. 
   2. Next, the company must get shareholder approval. Since the company is privately owned before an IPO the private investors will use the S-1 document to gather relative information. The investors will vote on whether the company goes public or not. 
   3. The company chooses the exchange it will electronically trade on and determine its trading symbol. Determining the exchange is an important aspect for developing a successful IPO, this is mainly because of market perception, and how the public/market perceives each exchange. The company also selects a few brokerages that will service IPO investors. These organizations will be different from Rocket Dollar. 
   4. Lastly, the next step is to raise money from the IPO through a process known as the roadshow. During this process, the company makes presentations to big investors to sell their stocks in large quantities at the IPO price so on the morning of the IPO, the big investors start selling/trading their shares at the public exchange, thus controlling the offering price in the IPO.
   5. The company is now public and trades on one of the electronically enabled major capital markets. It is now much more accessible through your traditional stocks and bonds brokerage. At this point, you could buy more shares on the open public markets, or if you were a private investor that purchased the shares through your Rocket Dollar account, you can sell your shares so someone else may acquire them on the public market, assuming you have completed the steps above.